In this detailed guide, we’ll take you through the details of the Construction Industry Scheme (CIS). This guide is meticulously crafted to equip contractors with an in-depth understanding of CIS, a pivotal tax deduction scheme in the UK’s construction industry.
We will explore the specifics of the scheme, encompassing aspects such as registration, compliance, and handling of deductions. Our team of seasoned CIS accountants will provide valuable insights and expert advice, enabling you to adeptly navigate the complexities of the scheme. This ensures adherence to compliance requirements while optimising your financial efficiency.
This guide serves as an indispensable resource for both newcomers to the construction industry and seasoned contractors. Equip yourself with the knowledge to effectively manage your CIS obligations and enhance your business operations today.
What is a CIS Accountant?
A CIS Accountant is a financial professional who specialises in handling the tax and financial matters related to the Construction Industry Scheme (CIS). The CIS is a tax deduction scheme in the UK, which involves deductions made at source by contractors from the payments that relate to construction work.
CIS Accountants have a deep understanding of the rules and regulations of the CIS and are adept at ensuring that businesses comply with these requirements. They assist contractors and subcontractors in managing their CIS obligations, which include registering for the scheme, verifying subcontractors, calculating and making deductions, and submitting monthly returns to HM Revenue and Customs (HMRC).
Who is a CIS Contractor
CIS Contractors are typically businesses that engage subcontractors to perform construction work. They could be construction companies, property developers, or even government departments. Their responsibilities under the CIS include verifying the employment status of their subcontractors with HM Revenue and Customs (HMRC), deducting tax from subcontractors’ payments at the appropriate rate, and submitting monthly returns to HMRC detailing these deductions.
In essence, your business must register with HMRC as a contractor if you are:
- Paying subcontractors to do construction work for you, or –
- You’re not in a construction business, but still usually spend more than £1m a year on construction related work.
CIS Pay & Bill Platform for your Subcontractors
In order to comply with CIS regulations as a contractor, you must deduct some percentage before making payment to your subcontractors. Your subcontractors can be an individual, another limited company or partnership. This is what’s known as the CIS Pay & Bill Platform.
HM Revenue and Customs (HMRC) will tell you how much to deduct from a subcontractor’s payments when you verify them. Verification can be done through commercial software or HMRC CIS online service.
The rates for CIS deductions are:
- 20% for registered subcontractors
- 30% for unregistered subcontractors
- 0% if the subcontractor has ‘gross payment’ status – something eligible subcontractors have to specifically apply for.
These deductions must be paid to HMRC, the same way as PAYE – these are accounted for as an advance payment towards the tax and National Insurance bill of the subcontractors.
CIS Pay and Bill Platform
In order to make CIS deductions for subcontractor payments, start with the total (gross) amount of the subcontractor’s invoice and then deduct the following expenses;
- Amount of VAT charged if the subcontractor is VAT registered
- Cost of materials bought
- Cost of equipment which are now unusable
- Fuel cost except the ones for travelling
- Other direct costs such as equipment hired for this job (Plant Hire)
- Any manufacturing related cost or prefabricating materials
The balance left over will be the cost of labour for doing the construction work, so we need to apply the relevant CIS rate on that amount. Keep that CIS deduction for payment to be made to HMRC and paid the rest to the subcontractor (for all the materials, direct costs and cost of Labour after CIS deduction).
Payment to HRMC for the CIS Deducted
You as a contractor have an obligation to run the CIS payroll, no matter if you have any PAYE employees or not.
Your company must submit a monthly report (RTI) to HMRC providing certain information, including the amount of CIS deducted from the subcontractors. The report needs to be made for all individuals and businesses you employ as CIS subcontractors as part of your working arrangements.
You must pay all the CIS deductions made, to HMRC, in the same way as other PAYE payments.
Looking For Help With The Construction Industry Scheme (CIS)?
Don’t navigate the complexities of the CIS alone. At Q Accountants, we’re here to guide you every step of the way. Our team of experts will ensure you stay compliant, maximise your returns, and focus on building your business.