HMRC’s Construction Industry Scheme (CIS) collects income tax throughout the year from anyone self-employed in the construction or building trade.
Below, we’ll explain what HMRC CIS is, how you can register for it, and how your tax works under it.
What is the Construction Industry Scheme (CIS)?
The HMRC CIS scheme was designed to boost revenue collected from the construction industry. You, as a contractor, must deduct money from subcontractors’ expenses and pass it to HMRC as tax.
Who does the HMRC Construction Industry Scheme affect?
The CIS affects contractors. In other words, if you pay subcontractors for a job or if your company spends over £1 million across three subsequent years.
That said, it can often be tricky to know if you’re a contractor or subcontractor – in fact, it’s perfectly possible to be both. For instance, if you accept a position and contract it out to a self-employed individual or take on work as a subcontractor.
Generally, the CIS covers all construction work. This includes permanent or temporary structures or buildings, together with bridges, roads and other civil engineering works.
Preparing the site (providing access works and laying foundations), dismantling and demolition; building work, decorating, renovations, modifications, fitting heating, power, lighting, ventilation and water systems all count as construction work.
You’ll need to register for CIS, as it’s your responsibility to subtract the correct amount of tax from your subcontractors.
But before doing so, be sure to confirm your subcontractors’ statuses with HMRC to find out which deduction they need:
- No tax deduction if they’re ‘gross’
- A 20% deduction if they’re CIS-registered
- A 30% deduction if they’re unregistered
You’ll then need to inform HMRC of all deductions.
What are the HMRC Construction Industry Scheme penalties?
As a contractor, you’re accountable for taking off the correct amount of tax from your subcontractors. If you don’t inform HMRC of your subcontractor payments correctly, you may see yourself paying a hefty fee of up to £3,000.
Make sure you pay your return fees by the 19th of every month for the preceding tax month. For example, you must make June’s returns by 19th July. A delayed return will only result in a penalty fee – you could face paying as much as £100 for missing just one day!
HMRC CIS: summary
The Construction Industry Scheme is an HMRC-controlled tax deduction scheme. It works to remove upfront national insurance and tax contributions from subcontractors’ pay cheques.
Under CIS, contractors and subcontractors have various responsibilities, which are defined under the HMRC CIS guidelines. What’s more, you can be a contractor, subcontractor, or both, all at once.
The easiest way to eliminate a CIS headache is to speak to a qualified accountant such as the experts at Accountants East London.
We take care of all the admin to ensure you meet HMRC’s regulations. We also guarantee that the status of each subcontractor is accurate and pay the correct tax to HMRC on your behalf.