This is just one in a series of blogs we are running regarding The Construction Industry Scheme (CIS) in the first blog we explained CIS what is it and does it apply to me?. Keep following the series of blogs relating to this topic for more information of what to do if CIS does apply to you.
If you work within the construction industry you will have heard this term CIS and hopefully you will have read our first blog “CIS what is it? Does it apply to me?”. This will have explained what you are catagorised as within the scheme. This article looks specifically at contractors.
If you have determined that yes you are a contractor within the Construction Industry Scheme (CIS) then there are certain rules which you must follow.
First things first- you must register as a contractor with HMRC with the Construction Industry Scheme (CIS) This applies whether you are a sole trader, in a partnership or you operate under your own limited company. You must register before you take on any subcontractors.
So now that you have registered as a contractor you need to determine if the person you are going to use to perform the work should be a subcontractor or actually are they an employee for you?
You may be liable to penalties if you get this status wrong, so it really is important to determine this with every single person. You can use the employment status indicator tool on the HMRC’S website to help you determine this.
Once you have determined that you are subcontracting the work to a subcontractor and not employing a person, you must check with HMRC that your subcontractors are registered with them under the CIS scheme.
HMRC will then verify if the subcontractor is registered under the scheme and will inform you of the rate of deduction you must apply when you make any payments to that subcontractor or whether the payment can be made without any deductions.
When you pay the subcontractor, you will need to do the following:
– calculate the deduction from their payment
– Make the deduction
– Record the details of the payment, materials and deduction
– Make the net payment to the subcontractor
– Complete and give an appropriate statement of deduction to the subcontractor for their records.
The deductions count as advance payments towards the subcontractor’s tax and national insurance bill. They need to keep this for their own records.
You need to file monthly returns with HMRC, if you fail to do this there is a strict penalty regime in place by HMRC; this could prove incredibly costly and detrimental to your business if you fail to meet these monthly requirements.
On the monthly return you will need to complete all the payments made within the scheme to subcontractors or report that no payments have been made. You still have to file nil returns.
On the monthly return you need to include the following:
– Details of the subcontractors
– Payments made to the subcontractors and deductions withheld
– Declaration that employment status of all subcontractors has been considered
– Declaration that all subcontractors that need to be verified have been verified.
You must send your monthly returns to HMRC by the 19th of every month following the last tax month.
Paying over deductions made
You need to pay over deductions made from subcontractors to HMRC every month by the 22nd (or the 19th if you’re paying by post). You may be charged interest and penalties if you pay late. Or if you have employees and operate a PAYE scheme HMRC will change this to a PAYE/CIS scheme and you need to pay over the deductions at the same time as you pay your PAYE tax and National insurance.
The next blog in our construction industry scheme series will focus on the subcontractor and our final blog in the series will focus on what to do if you are a contractor who is also a subcontractor.
In the meantime if you have specific questions regarding CIS why not contact one of our team who would be only too happy to help you.
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