What is the Construction Industry Scheme?
CIS is a tax deduction scheme designed to reduce levels of fraud and tax evasion in the construction industry by taking a certain percentage of a subcontractor’s earnings upfront, which then goes toward their tax and National Insurance (NI).
For more information on how CIS works, read our Construction Industry Scheme page.
What are the different CIS tax rates?
The way in which CIS works is not too dissimilar to the PAYE system for employees, and as a contractor, it is your responsibility to hold back these ‘advanced tax payments’ from your subcontractors and then forward them to HMRC.
There are three different CIS tax rates and the amount deducted from each subcontractor will all depend on their CIS status.
A contractor has to register for CIS and although this is not mandatory for a subcontractor, it will make a difference to the tax rate applied.
A subcontractor who is registered will have a 20% deduction rate.
This figure increases to 30% for those who are not registered.
There will also be some subcontractors who have a ‘gross payment’ status set at 0%, in which case you will pay them in full and then it is up to them to pay their own tax and NI at the end of the tax year.
There are certain requirements to qualify for gross payment, for example, proving that a business is up-to-date with all tax liabilities and filings and passing a 12-month turnover test.
Deducting and paying CIS tax to HMRC
Once you know your subcontractor’s CIS status, you can then deduct the correct amount of tax from their pay – you will find out their status once you have verified them with HMRC.
CIS deductions need to be filed and paid in the same way as PAYE and NI payments; so, if you pay monthly, this is the 22nd of the next tax month and if you pay quarterly, this will be the 22nd after the end of the quarter.
It’s quick and easy to pay online, you’ll just need your 13-character accounts office reference number as the payment reference, which you can find in your HMRC online account, on the letter HMRC sent when you registered as an employer (either to you or your accountant/tax advisor if they did this on your behalf) or, if you have one, it will be at the front of your payment booklet.
If you decide to pay by post, you must ensure that it will reach HMRC by the 19th of the month.
For further information on CIS tax, read our How does Construction Industry Scheme tax work? page.
We hope you found this page useful. If you have any further questions on CIS or anything else, our team of experts are available to answer any queries, so give us a call on 01442 795 100 or email email@example.com.