The Construction Industry Scheme (CIS) determines how payments to subcontractors for construction work must be handled by contractors. The CIS ensures that subcontractors' tax and National Insurance contributions are correctly deducted and reported.
Key Features of the Construction Industry Scheme (CIS)
Businesses covered whilst complying with CIS :
Contractor: Contractor is a business or an organisation that pays construction work dues to a subcontractor. This includes property developers and certain other organizations that spend over £3m on construction within the last 12 months.
Subcontractors: A business that carries out construction work for a contractor is called a subcontractor.
CIS covered work:
Includes building work, alterations, repairs, decorating, and demolition.
Construction-related activities, such as site preparation, general construction, installation of systems (e.g., heating, lighting, water, sanitation), and even cleaning of buildings after construction work.
HMRC registration for CIS:
Contractors must register with HMRC for the CIS.
Subcontractors not registered with HMRC may face higher tax deductions.
CIS Tax Deductions:
Contractors must make tax deductions from subcontractors' payments and pass these deductions to HMRC.
Registered subcontractors typically have 20% deducted from their payments.
Unregistered subcontractors face a higher deduction rate of 30%.
There is a possibility for certain subcontractors to apply for gross payment status, where no deductions are made, and they pay their taxes directly to HMRC.
CIS Reporting and Record-Keeping:
Contractors must report to HMRC monthly, detailing the payments made to subcontractors and the amounts deducted.
Both contractors and subcontractors are required to keep detailed records of payments, deductions, and any other relevant documentation.
CIS Compliance and Penalties:
Failure to comply with CIS regulations can result in penalties and fines from HMRC.
Regular audits and inspections can be conducted by HMRC to ensure compliance.
How CIS Works in Practice
CIS Verification: Contractors must verify whether subcontractors are registered with HMRC under CIS before making any payments.
CIS Deduction: Contractors make the appropriate tax deductions from payments made to subcontractors.
CIS Payment to HMRC: Contractors must pay the deducted amounts to HMRC by the 19th of every month following the month of deduction.
CIS Monthly Returns: Contractors submit monthly returns to HMRC, detailing all payments and deductions.
CIS Statements to Subcontractors: Contractors provide subcontractors with a statement of the payments and deductions made.
The CIS helps to ensure efficient tax deductions and minimizes tax evasion risk in the construction industry.
FAQs
1. Who is counted as a contractor or a subcontractor for CIS?
2. What are CIS deductions?
3. What are CIS exemptions?
4. What types of businesses are covered by CIS?
5. What are CIS returns?
6. How is a subcontractor verified in CIS?
7. When are CIS payments made to HMRC?
8. Are employees covered by the CIS scheme?
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