What is the Construction Industry Scheme (CIS)?
The Construction Industry Scheme (CIS) is a set of rules and regulations that govern the way tax is handled for those working in the construction industry in the UK. It is designed to ensure that the correct amount of tax is paid by those working in the industry, and to prevent tax evasion.
What are the main rules of the CIS?
The main rules of the CIS include the requirement for construction companies to register with HM Revenue and Customs (HMRC), the requirement for those working in the industry to have a CIS card, and the requirement for construction companies to deduct tax from their workers’ pay and pay it to HMRC.
Who needs to register for the CIS?
Construction companies that pay subcontractors for construction work need to register for the CIS. This includes companies that carry out construction work as well as companies that manage construction projects but do not carry out the work themselves.
What is a CIS card?
A CIS card is a card issued by HMRC that verifies the identity and tax status of an individual working in the construction industry. It is required for those who work in the industry and are subject to the CIS rules.
How does the tax deduction process work under the CIS?
When a construction company pays a subcontractor for construction work, they are required to deduct tax from the payment before they pay it to the subcontractor. The company then pays this tax to HMRC on behalf of the subcontractor. The subcontractor will then be able to claim the tax back on their tax return if they are entitled to do so. This reclaim is dependent if you trade as sole-trader (individual – self-assessment return) or limited company (PAYE).
You will have to be registered with HMRC as a subcontractor to verify and only have 20% deducted from gross pay, if you are not registered and need to be paid the contractor will be required to deduct 30% until they can verify your details for CIS with HMRC.
The contractor must supply monthly CIS statements detailing the amount of CIS which has been withheld and paid over to HMRC on your behalf. These must be kept with your accounting records as supporting evidence.
What does it mean to register for gross treatment?
When a subcontractor registers for gross treatment under the CIS, it means that they will not have tax deducted from their payments by the construction company they work for. Instead, they will be responsible for paying the tax themselves, either through self-assessment or through paying estimated payments during the year
Who can register for gross treatment?
To be eligible for gross treatment, a subcontractor must meet certain criteria set out by HM Revenue and Customs (HMRC). They must have a valid CIS card, have no outstanding tax debts, and must submit a complete and accurate self-assessment tax return for the previous tax year and Your company’s net construction turnover must have been £30,000 or more in the last 12 months.
How do I register for gross treatment?
To register for gross treatment under the CIS, a subcontractor must complete a form CIS305, which is available on the HMRC website. The form must be completed and sent to HMRC, along with any required documents, such as proof of a valid CIS card and a completed self-assessment tax return. Once the form has been processed, HMRC will confirm whether the subcontractor has been granted gross treatment.
It’s worth noting that If a subcontractor is granted gross treatment, it will be reviewed every year by HMRC, and the subcontractor will need to continue to meet the eligibility criteria and submit their self-assessment tax return on time.
What are the penalties for non-compliance with the CIS?
If a construction company does not register for the CIS or does not deduct tax as required, they can face penalties and fines from HMRC. Subcontractors who do not have a CIS card or who do not report their income correctly can also face penalties
What happens if I have had too much tax deducted under CIS?
The answer to this depends on whether you are set up as a Sole Trader, or as a Limited Company
Let’s look first at sole traders who have had too much CIS tax deducted at source:
At the end of each tax year when you complete your self assessment tax return, you will need to include all CIS suffered and offset this against tax which is owed.
If this results in a refund of tax, HMRC will repay this back to you. The quicker you file your tax return after the 6th April the quicker you will claim this tax back.
Please note this action is the same even if 30% has been deducted hence why it is very important to register and be verified before commencement of any CIS work.
It is also important to remember to include the bank account details into which you would like any repayment to be paid in the correct place on your tax return. This will speed to repayment process up, and ensure that you are paid directly rather than HMRC issuing a refund by way of cheque.
Is the process for reclaiming any CIS due different if you operate as a limited company?
If your company has gross CIS payment status, you just declare all your income in your company tax return (CT600) as usual.
If you suffer CIS deductions, you must claim these back through your company PAYE (monthly payroll pay as you earn scheme).
Your payroll manager should send your monthly FPS as usual to HMRC, and also send an EPS on which they have entered the CIS deductions for the year to date.
HMRC will then take your CIS deductions off what you owe in PAYE tax and NIC.
If you have something to pay, you will pay by usual date, or if CIS suffered is more than PAYE tax and NIC then a repayment will be due to you and can be reclaimed at the end of each tax year either online or by post.
Please be aware that if HMRC think any claim is wrong, they will ask for supporting evidence which is why it is important to keep records of CIS statements showing deductions from your contractor(s)
How can I get more information about the CIS?
You can visit the HMRC website for more information about the CIS, including guidance on registration, tax deductions, and penalties for non-compliance. You can also contact HMRC directly with any specific questions or concerns.
For more information about Construction Industry Scheme (CIS), please get in touch with the IN Accountancy team for advice. Contact us today on 0161 456 9666 or email askus@in-accountancy.co.uk. Our experienced, friendly and knowledgeable team is here to provide your small and medium-sized business with all the support and guidance you need to navigate the complex rules regarding the Construction Industry Scheme (CIS) and other construction accounting and tax queries in general.
