CIS Contractor – Construction Industry Scheme
CIS (short for “The Construction Industry Scheme“) was set up by HMRC to collect income tax throughout the year from people working in the construction industry.
Construction companies deduct tax on behalf of their workers (subcontractors) and send the money to HMRC as tax payments:
- 20% for workers who have registered themselves as subcontractors with HMRC
- 30% for those who have not.
Note that CIS only applies if you work in construction as a subcontractor and you have registered for CIS.
Registration
You will need to register as a CIS contractor if you plan on paying subcontractors for ‘construction work’. CIS covers most construction work to a permanent or temporary building or structure.
For the purpose of CIS, construction work includes:
- Preparing the site, e.g. laying foundations and providing access works
- Demolition and dismantling
- Building work
- Alterations, repairs and decorating
- Installing systems for heating, lighting, power, water & ventilation
- Cleaning the inside of buildings after construction work
Verification
As a CIS contractor you have a duty to deduct the correct amount of tax from payments made to CIS subcontractors.
In order to know which rate to deduct from your subcontractors (30%, 20% or 0%) you need to verify them with HMRC before you pay them. It’s important that you verify contractors because if you deduct too little from them, you could be liable for the difference!
If we (Addison accounts & Training Ltd) verify your CIS contractors for you, you’ll need to get them to fill out the following form so that we can verify them:
Dates
You’ll be required to submit a monthly form (called a CIS Return) to HMRC. The CIS Return covers a period from the 6th of every month until the 5th of the next month. The CIS Return along with
payment is due 14 days after the period end date on the 19th of the month.
For Example
A CIS period that runs from the 6 January 2000 to 5 February 2022 is due to be submitted and paid by 19 February 2022.
Penalties for late returns
Fines can accumulate quite quickly in the CIS scheme so make sure you’re on top of things. I’ve seen on multiple occasions situations where people have had thousands of pounds in fines!
You’ll get a penalty if you miss the deadline for filing returns. Below is a list of how much you’ll be fined if CIS Returns are submitted late – this is per monthly return!
1 day late =
£100
2 months late =
£200
6 months late =
£300 or 5% of the CIS deductions on the return, whichever is higher
12 months late =
£300 or 5% of the CIS deductions on the return, whichever is higher
Labour & Materials
The subcontractor will need to split out labour and material costs when they invoice you.
CIS tax is only deducted from labour (not materials) and so some subcontractors may try to inflate the materials split in order to have less tax deducted from their invoice.
It falls on your shoulders to check the split between labour and materials because if the wrong tax is deducted you may be liable for the underpayment in tax. You therefore have every
right as a contractor to ask for receipts of materials.
CIS Returns
The information included on your CIS Returns is as follows:
- The subcontractors Personal/Business Name
- How much you paid them in Total Payments (Labour & Materials excluding VAT)
- How much you paid them in Total Materials (excluding VAT)
- How much CIS Tax you deducted from them
Reverse Charge VAT
If you are a VAT registered contractor, it’s your responsibility to not pay any VAT to CIS registered subcontractors.
REVERSE CHARGE VAT FOR THE CONSTRUCTION INDUSTRY
Reverse Charge VAT
What is it?
This legislation applies to all VAT registered construction (CIS) businesses in the UK. It has been brought in to reduce VAT fraud by moving the VAT liability from the supplier (subcontractor) of a service in the construction industry to the customer (contractor).
Exemptions
The reverse charge does not apply to the following supplies:
- Supplies of VAT exempt building and construction services
- Supplies that are not covered by CIS
- Supplies of staff/workers
It also does not apply to supplies made to non-VAT registered customers or overseas customers.
Changes
If you are a VAT registered contractor, it’s your responsibility to not pay any VAT to CIS registered subcontractors. If a CIS registered subcontractor adds VAT to their bill, you’ll need them to reissue the bill without the VAT included using the reverse charge method.
If you are a VAT registered subcontractor and you provide construction services to a VAT registered contractor, you no longer account for the VAT on your invoice to them. Instead, you need to inform them that the reverse charge procedure applies on your invoice.