What is CIS?
The Construction Industry Scheme (CIS) generally includes jobs such as site preparation, general building services (bricklaying, plastering, roofing, etc.), repairs and refurbishment, alterations and extensions, decorating and dismantling/demolition. This can be for work done to a permanent building, temporary structure or for civil engineering work or installation.
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Contractors, subcontractors, businesses with large expenditure on their own properties, schools, local authorities, agencies and gangs.
All new contractors must register with HM Revenue & Customs to operate the Construction Industry Scheme and must do so before engaging their first subcontractor. This also applies when existing businesses set up new partnerships or limited companies.
Subcontractors should register under the scheme before they commence work. If not registered, HM Revenue & Customs will dictate that deductions be made at the higher rate of 30%.
Most subcontractors will have tax deducted at the standard rate of 20%. There is also a higher rate of 30% for subcontractors who are not registered or who have a poor record with HM Revenue & Customs. For those that meet the criteria, there is gross payment status which means that no tax is deducted.
Before paying a subcontractor, the contractor must contact HM Revenue & Customs and provide details to identity the subcontractor. HM Revenue & Customs will check that the subcontractor is registered on their system and then provide details to the identity of the subcontractor.
Having received notification of the rate of tax deduction, the contractor should retain details and keep a note of the verification reference number. Payments to subcontractors should also be supported by CIS payment and deduction statements and a note of the monthly payment to HM Revenue & Customs retained. Monthly statements must be made up to the 5th of the month and filed/tax paid by the 19th of the month.
Subcontractors must keep copies of their deduction statements to enable them to reclaim the CIS tax.
Penalties apply for missing deadlines, even if just one day late, and these escalate if returns continue to be outstanding after two months, six months and twelve months. Penalties are applied even if the return has no subcontractors on it and in serious cases, penalties can be up to £3,000 or 100% of the CIS deductions. Surcharges are also in place for late payment of tax.
The employment status of CIS workers is a hot topic for HM Revenue & Customs and can be an area at risk of challenge. Care should be taken to review the key indicators of employment or self-employment to ensure their correct treatment.
HMRC employment status indicator tool – view here
At Howard Worth, as well as assisting with all areas of the CIS scheme, we can help you with routine checks and compliance visits and deal with HM Revenue & Customs on your behalf.