CIS – Construction Industry Scheme or Confusing Industry Spiel?
The Construction Industry Scheme (CIS) can be a little complicated when it comes to filing a tax return. The scheme covers all payments between contractors and subcontractors who work in the construction industry together with companies or individuals investing large sums of money for the purposes of construction.
In most industries when a sole trader or company carries out work for a third party it is a pretty straightforward process. Once the work is completed an invoice is raised, the customer then pays according to the terms. However, this is not the case when individuals or companies carry out the same transaction in the construction industry – for this we have CIS.
CIS for subcontractors
The CIS is fairly straightforward for subcontractors. Once you have registered you can provide your details to the contractor, they then verify you with HM Revenue & Customs (HMRC) and pay you accordingly. To verify you with HMRC the contractor will need your UTR (Unique Tax Reference), NI number and your full name. Once verified, HMRC will inform them how much tax they must stop you, in the majority of cases this is 20% but if they are unable to verify you then HMRC will tell them to stop you 30%, and they must continue to do so until HMRC tells them otherwise.
If you are a contractor
The first thing contractors should do is register with HMRC as a contractor. This will enable you to pay other people who fall within the scheme. When paying someone for the first time you must verify his or her identity and status, a fairly simple process that can be carried out by telephone or online. For you to verify the individual or company they will need to provide the following:
Sole trader: UTR, NI number and full name.
Partnership: Partnership UTR, trading name and the NI number of one registered partner.
LTD company: UTR, company registration number and the address of the registered office.
Once you have verified subcontractors, HMRC will tell you the percentage of tax to deduct, 20%, 30% or 0%. This deduction must be made on everything except materials, it is therefore important that their invoice breaks down the material element so that you do not stop tax on the whole amount. If any other charges are shown such as travel or out of town expenses you must deduct tax from these also.
All subcontractors, regardless of if you have stopped them tax or not, have to be entered onto a monthly return, which is then be submitted to HMRC by the 19th of every month. If you do not pay anyone within the month you must still submit a nil return. Failure to submit a return will generate an instant fine.
Registering for CIS online
By far the easiest way to administer this is online. All subcontractors that you have used in the previous two years are listed, you tick the boxes next to the names of the ones you have paid and then enter the amounts. This has the added advantages of giving you more time and generating an instant receipt, whereas if you send it by post and HMRC claims to have never received it, there is very little you can do other than pay the fine.
If you have any questions or would like any help or advice regarding CIS please do not hesitate to contact one of our specialists at Taxaccolega, who are low fixed fee accountant, on 08000 235 234 or email email@example.com.