What is the Construction Industry Scheme?
CIS is a tax deduction scheme – it is sometimes mistaken for being an additional tax, but it’s more like an upfront tax system.
With HMRC fearing that dishonest subcontractors may not declare the money earned from working for bigger companies, the scheme is designed to reduce levels of fraud and tax evasion.
There’s also the added bonus of helping subcontractors to spread their tax liabilities over the financial year due to the deductions counting as advanced payments toward their tax and National Insurance (NI).
For more information on this, take a look at our CIS page.
CIS tax rates
The amount that you need to deduct for CIS will all depend on the status of the subcontractor.
Those who have registered for CIS will have a 20% deduction rate, however, for unregistered subcontractors, this figure increases to 30%.
If the subcontractor has ‘gross payment’ status then they have a 0% deduction rate. This means you pay them in full and it is then their responsibility to pay their own tax and NI at the end of the tax year.
For more information on this, take a look at our Construction Industry Scheme tax rates page.
Contractor CIS tax responsibilities
As the contractor hiring the subcontractor, it is your responsibility to deduct the CIS tax and pay this to HMRC.
When you verify the subcontractor, you’ll learn whether or not they are registered for the scheme, which, as mentioned previously, will determine the rate deducted from their pay.
CIS deductions need to be filed and paid to HMRC in the same way as PAYE and NI payments; 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 (for example, 22nd July for the 6th April – 5th July quarter).
You can do this either by post (in which case it must reach HMRC by the 19th of the month), or online. If paying online then you’ll need to use your 13-character accounts office reference number as the payment reference.
You could face penalties if you fail to give the correct employment status for a subcontractor on your monthly return.
What if I have a period where I don’t hire subcontractors?
If you have previously hired subcontractors and then have a phase where you do not, then you’ll need to make HMRC aware of this in the form of an ‘inactivity request’, which will last for six months.
You’ll need to let HMRC know as soon as you start using subcontractors again.
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 sophie.lewis@dolanaccountancy.com.
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