A Contractors Guide to the Construction Industry Scheme (CIS)

As a contractor in the construction industry, it’s essential to know what your obligations are under the Construction Industry Scheme (CIS) to remain compliant with HMRC regulations and avoid costly penalties.

Daniella Wardley, Client Manager explains what CIS is and what actions you need to take to comply.

What is CIS?

If you pay subcontractors for construction work then you may have to deduct CIS tax from their invoices, which is declared and paid monthly to HMRC. These deductions count as advance payments towards the subcontractors’ yearly tax liability.

CIS covers all construction work, with the exception of:

• architecture and surveying
• scaffolding hire (with no labour)
• carpet fitting
• delivering materials
• work on construction sites that is clearly not construction, for example running a canteen or site facilities

CIS obligations

As a contractor what do I need to do?

1. Register as a contractor with HMRC before you engage your first subcontractor.

You can do this by visiting GOV.UK where you can also find a dedicated helpline for CIS questions.

2. Verify each subcontractor with HMRC at the point of engagement to determine their CIS status.

At the time a subcontractor is engaged, you will need to ‘verify’ them with HMRC. This will tell you:

• Whether they are registered under the CIS scheme
• What rate of deduction to use

This can be done via your HMRC login or by using CIS compatible software such as Xero.

Subcontractors that have not been included on a CIS Return for the last 2 years should be re-verified.

What details will I need from the subcontractor?

3. Make the relevant CIS deductions on subcontractor invoices.

When you verify a subcontractor HMRC will tell you which rate of deduction to use. There are 3 different rates:

• 20% for registered subcontractors
• 30% for un-registered subcontractors
• 0% if the subcontractor has gross status

The CIS deduction percentage should be applied to the labour value of the invoice excluding VAT. If you are using  CIS compatible software such as Xero, this can be set up to calculate automatically for you from the subcontractor details entered onto the system.

4. File monthly CIS returns and pay over any amounts due to HMRC.

CIS returns should be filed each month with HMRC – consisting of all payments made to subcontractors during the period

These should be made up to the 5^th of each month and are due for filing by the 19^th of each month.

Any CIS deducted should be paid by the 22^nd of each month

If you already have employees, then you can make one payment each month which covers your liability for PAYE/NI and CIS.

They can be submitted either via your HMRC online account or on CIS compatible software, which links through to HMRC.

If you have made no payments during the period, you are still required to submit a nil return. If you are not planning on making CIS deductions for the next 6 months, then you can inform HMRC to remove the need to file a nil return for this period.

5. Issue CIS payment and deduction statements to any subcontractors where CIS deductions have been made.

If any deductions are made in the month, then a CIS payment and deduction statement should be issued to the subcontractor by the 19^th   of each month.

The template can be downloaded from the HMRC website or if using CIS compatible software, the statement can be automatically generated.

What happens if I don’t comply?

• If you don’t file your monthly return on time – an automatic penalty of £100 will be issued, increasing to up to 100% of the CIS deductions due if it’s more than 12 months late.
• If you pay your CIS late – there’s a possible penalty of 1-9% of CIS due plus daily interest charges.
• If you fail to keep records for at least 3 years – there are fines of up to £3k.
• If you fail to verify a subcontractor, fail to make deductions or file an incorrect return – you could be held liable for any CIS deductions that should have been made, plus further penalties and interest charges.

With our knowledge and experience of the construction sector we’re here to help with specialist, bespoke advice on. Reach out to Daniella or one of the team on 0330 058 6559 or by emailing hello@scruttonbland.co.uk