CIS… what is this and how do I stay compliant?

20th November 2024

If you work in the construction industry, you have probably heard the term CIS or Construction Industry Scheme, but do you know what this means or how it can affect the running of your business?

In this post, we will provide you with everything you need to know to understand the basics of CIS.

 

What Is CIS

CIS is a HMRC scheme which requires contractors to make a tax deduction from subcontractors working in construction industries. The deductions are made on the labour payments only, and material costs are paid in full. The percent deducted will depend on the status of the subcontractor:  

  • 30%- Not registered with HMRC to suffer CIS on their invoices (not verified)
  • 20%- Registered with HMRC (verified)
  • 0%- Registered with HMRC for gross payments (must provide proof of this from HMRC)

  The deductions made are paid over to HMRC and allocated to the subcontractors’ Unique Tax Reference (UTR), as an advanced payment towards their tax bill. This scheme is applicable for all subcontractors, regardless of whether they are self-employed or operating as a limited company.  

Contactor

A contractor is the business hired to complete a building project. The contactor may then hire subcontractors to complete specialist work.  

Subcontractor

A subcontractor is a business or individual hired by the contractor to complete specialist work within the job. As they are hired by the contractor, they will then be deducted CIS from their invoices.  

Deducting CIS and how to report it

CIS must be deducted from all subcontractors providing labour to a contractor. The contractor in turn will then have to report the deductions to HMRC via a payroll scheme using the subcontractors’ UTR. When the deductions are reported to HMRC, the contractor will then have to pay over the stopped payment to HMRC. Details of the amount owed can be found on the contractors P30 (employer’s bill). They will also have to issue their subcontractors with deduction statements which state the amount stopped. The only exception to this is if the subcontractor is registered for gross payment with HMRC. To verify this, the subcontractor should provide you with a copy of the gross payment certificate from HMRC.  

Do I need to report anything if I have CIS stopped on my invoices?

If you are a self-employed subcontractor there is no requirement to report anything to HMRC during the year. When it becomes time to submit your tax return, you will need to include the total amount of CIS you have had stopped on your invoice through the year. This figure will then be offset against the tax you owe HMRC. If you have ended the year paying more over in CIS than was due in tax, you will then receive a CIS reclaim. If you are operating as a limited company, you will need to report the CIS stopped from your invoices on your company payroll, and then submit a reclaim to HMRC after the PAYE year closes (after 6th April). It is important to note that the submission is made in line with the PAYE year, not your company’s trading year.

 

Working as both a contractor and sub-contractor

Working as a contractor and sub-contractor, unless working for private customers, you will be having CIS stopped from your own invoices and be stopping CIS from your subbies. To help with cash flow in this situation, you are able to record both the CIS stopped and the CIS deducted on your payroll. These two figures are then off set against each other, meaning you only have to pay HMRC, the CIS deducted if it exceeds the CIS stopped. At the end of your PAYE year (5th April) if you have suffered more than you owed HMRC, you can then request a reclaim for the difference.  

Reverse charge of VAT

HMRC have brought in a new VAT treatment called VAT reverse charge which is only applicable to those working in the construction sector. This means that your VAT will be paid over to HMRC by the contractor.  

Hopefully this has explained a little more on how CIS works and what it means for your business. If you would like to discuss this further, Walton Accountancy (our sister company) would be happy to go into more detail. You can call them for a free consultation on 02392 593917.

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