What is the Construction Industry Scheme (CIS)?

If you are either a self-employed subcontractor or contractor working within the construction industry, you need to register for the Construction Industry Scheme (CIS).

CIS was introduced to regulate payments within the construction industry and ensure that all earnings are declared.

What are contractors and subcontractors?

Contractors are businesses that spend in excess of £1million a year on construction. Typically these are construction companies, government departments and local authorities.

In contrast, subcontractors are simply those that carry out work for contractors. Under CIS it is possible for businesses to act as both contractors and subcontractors depending upon the jobs they undertake.

If you are employed in the construction industry and don’t have self-employed status, you needn’t worry about CIS as you only need to register if you are self-employed.

What does CIS mean for contractors and subcontractors?

Under CIS rules, contractors are required to file a monthly return to HMRC as apposed to a single tax return on a yearly basis. The CIS returns will:

  • Prove that the employment status of all subcontractors has been taken into account.
  • Prove that the verification process has been dealt with correctly.
  • Outline all payments that have been made to subcontractors over the period.
  • Detail tax deductions that have been made from payments to subcontractors.

Your accountant will be able to complete the monthly returns for you and the deadline is 14 days after the end of each tax month. Even if you haven’t paid any subcontractors that month you’ll still need to send a return to HMRC.

How do you register for CIS?

Registering for CIS is a relatively straightforward process, all you need to do is head over to the HMRC website and follow the steps. If you are already registered as self-employed and have a UTR number, all you need to do is call the CIS helpline and they will be able to register you for the scheme.

It is a legal requirement to register for CIS if you meet the criteria, so it is essential that you do not carry out any construction work until you have registered. Failure to do so could result in additional costs and delays in receiving payments.

Do you still need to complete a self-assessment tax return?

If you are a subcontractor, you are still required to complete a self-assessment tax return by the January 31st deadline. You’ll have already paid tax throughout the year under CIS, so you’ll be able to offset this against your final tax bill calculated via your self-assessment.

Assuming you haven’t earned any additional income, you should have no further tax to pay.

For contractors, its not quite as straightforward, but remember that your accountant will always be able to help. As a contractor, it is likely that you will have multiple income streams throughout the year and this can quickly become a complex tax calculation. You’ll still need to complete a self-assessment so it is vital that you keep on top of the paperwork to ensure that all of your earnings are declared.

How do I pay tax as a subcontractor?

If you are a subcontractor, you’ll need to file a tax return each year that details any profits that have been generated via the construction industry. You will have likely paid tax throughout the year via deductions made by payments from contractors and this will be offset against your final tax bill.

Being aware of false self employment

The government has been clamping down on false self-employment for sometime, most notably with the introduction of IR35. False self-employment in the construction industry is something that has caused much discussion and the government has concluded that they are looking to bring in a new piece of legislation to combat disguised self-employment in the construction industry.

In order to be considered as self-employed within the construction industry, you will need to satisfy at least one of the following criteria:

  • Provide your own materials
  • Provide additional workers to complete a job
  • Provide your own equipment (other than customary to the trade)

At Contractor Accountants Online, our team are experts in CIS and can manage all of your accountancy needs.  To find out more about how we can help, call our friendly accountants on 020 7481 4743.

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