The Construction Industry Scheme (CIS) is a tax deduction scheme set up by HMRC for construction workers and contractors. It is important to make sure that you adhere to the rules and regulations of the construction industry scheme to avoid any penalties or fines.
This blog discusses the rules of the Construction Industry Scheme that you need to understand to remain compliant with HMRC regulations.
If you are unsure about any aspect of the CIS, it is always best to seek advice from a tax professional to ensure that you are doing everything correctly.
Are you a contractor hiring subcontractors and withholding CIS tax from their payments?
If you’re a contractor, it is crucial to verify the employment status of your workers to determine whether they should be treated as employees or subcontractors.
You will need to register as a contractor if either:
- you pay subcontractors for construction work
- your business does not do construction work but you have spent more than £3 million on construction in the 12 months since you made your first payment
Examples of construction contractors include builders, property developers and labour agencies that pay subcontractors for construction work and also local authorities that spend more than 3 million on construction.
Are you a subcontractor having CIS tax deducted from your income?
Whilst contractors must register for CIS, this is a choice for subcontractors. They don’t have to but whether you’re registered for CIS or not determines the amount of tax you pay.
If you register with CIS, you’ll pay 20% tax. If you’re not registered for CIS, you’ll pay 30% tax. That’s a pretty massive difference! If that extra 10% has prompted you to register for CIS, you can find out how to do this here.
Alternatively, If you’re a subcontractor and do not want deductions to be made in advance by contractors, you can apply for ‘gross payment status’. Having gross payment status means contractors will pay you in full, without deductions. You’ll be responsible for paying all your tax and National Insurance at the end of the tax year.
Construction work not covered by CIS
Certain jobs are exempt from the scheme, including:
- architecture and surveying
- scaffolding hire (with no labour)
- carpet fitting
- delivering materials
- work on construction sites that aren’t construction, for example running a canteen or site facilities
- work paid for by charity, trust, governing body, or head teacher of a maintained school
- construction contracts worth less than £1000, excluding materials
Is domestic reverse charge the same as CIS?
No, the domestic reverse charge is not the same as CIS.
The domestic reverse charge is a new way of accounting for VAT in the construction industry, where the customer is responsible for paying the VAT directly to HMRC instead of the supplier.
This measure was introduced to combat VAT fraud in the construction industry.
Making tax digital
At 360 Accountants, we specialise in providing accurate and timely financial information. Our finely tuned system ensures that we never miss deadlines.
You can file your monthly CIS returns directly from our online software so that all of your business finances are managed from one place.
Take a look at our making tax digital support for more information. Or call 01482 426360 to speak to our team of professional accountants.
