The Construction Industry Scheme (CIS) offers contractors deductable tax benefits for work carried out by sub-contractors and other qualifying third parties. If you have heard about the scheme and want to know more, or if CIS is news to you the following guide provides you with a general overview in relation to tax.
What is the Construction Industry Scheme?
CIS is governed by HMRC, but allows contractors to deduct tax from source in relation to construction work. You can therefore make convenient monthly payments rather than calculating your tax liabilities in your annual Self-Assessment Tax Return Form.
Does CIS cover payments made to employees?
No, CIS doesn´t cover payments to employees as they are covered by the Pay As You Earn (PAYE) scheme. However, the CIS scheme works with the same principles in that tax is deducted at the time of payment. Before you deduct taxable income under the construction industry scheme check that the sub-contractor is CIS registered and what level of registration they have.
When does CIS apply?
CIS only applies when you are paying for the services of construction work performed by a sub-contractor. These include builders, property developers together with businesses that are not in the construction business, but have invested £1 million or more on the construction project over a three year period.
How much tax is deducted under CIS?
Providing the sub-contractor is eligible under the CIS you can deduct 20% tax rather than the usual 30 per cent. A subcontractor will submit an invoice for labour and materials. As a contractor you will deduct 20 per cent from labour costs only and pay HMRC as tax.
What should I do if I am a sub-contractor?
If you are offering your services under the Construction Industry Scheme independently rather than with an umbrella company or on the payroll of a contractor you should ensure you are recognized as having self-employed status and include tax deductions on each of your invoices in your Self Assessment Tax Return. You are required by HMRC to keep efficient business records to keep track of your invoices in case they want to investigate your business tax claims. HMRC are clamping down on sub-contractors that take advantage of CIS in an attempt to identify people who are avoiding paying taxes.
How can Taxaccolega help me as with CIS?
Tax affairs under the Construction Industry Scheme can become very complicated depending on the type of contract you enter. Different tax rules applies for self-employed, umbrella companies or payroll contracts and if you make an error when completing your Self Assessment Tax Return you will either pay more tax than you have to or you will be fined by HMRC for filing an incorrect tax return form. Either way, you lose money.
The qualified experts at Taxaccolega will ensure your Self Assessment Tax Return is filed correctly and we will also advise you what records you need to be keeping to manage your accounts together with hands on advice whenever you enter into a contract within the CIS rules. If you have any questions about the Construction Industry Scheme call us now on on 0800-0235-234 or email us on firstname.lastname@example.org.