What is the Construction Industry Scheme (CIS) and how does it work?

Who is covered by the construction industry scheme?

CIS, including self-employed individuals, partnerships, and limited companies, covers all construction industry subcontractors. The scheme also applies to contractors who pay subcontractors for construction work. To be eligible for the CIS, subcontractors must be registered with HM Revenue and Customs (HMRC) and have a unique reference number.

How to verify the contractors?

To verify a subcontractor, contractors must first check the subcontractor's unique reference number, which can be found on the subcontractor's CIS card or online registration system. In addition, contractors must check the subcontractor's status with HMRC, as this will determine whether the subcontractor is eligible to work under the CIS. The status of the subcontractor can be verified by checking the CIS online service, by phone or by post.

What documents do you need to verify the contractors?

To verify a subcontractor, contractors must have the following documents:

• The subcontractor's unique reference number
• Proof of the subcontractor's status with HMRC
• The subcontractor's CIS card or a copy of the CIS registration certificate
• The subcontractor's proof of identity and address
• The subcontractor's proof of VAT registration (if any)

Are there any exceptions in the construction industry scheme?

There are some exceptions to the CIS, such as if a subcontractor is working on a small-scale project that does not exceed £1 million in value, they may be exempt from the scheme. In addition, some types of construction work, such as building new houses, are also exempt from the CIS. It is important to check with HMRC to determine if a project or subcontractor is exempt from the scheme.

What are the rules to follow for the construction industry scheme?

To comply with the CIS, contractors must:

• Verify the subcontractor's unique reference number
• Check the subcontractor's status with HMRC
• Deduct tax and National Insurance contributions from the subcontractor's payments
• Submit the correct amount of tax and National Insurance contributions to HMRC
• Keep accurate records of all payments made to subcontractors
• Issue a monthly CIS return to HMRC
• Provide the subcontractor with a monthly statement of payments and deductions

What should the contractors know about CIS and IR35?

IR35 is a set of rules that applies to contractors who provide services to clients through intermediaries, such as personal service companies. The rules are designed to ensure that contractors who work as if they were employees pay the correct amount of tax. Contractors caught by IR35 may have to pay additional tax and National Insurance contributions. It is crucial for contractors to understand the difference between CIS and IR35 and to ensure that they comply with both sets of rules.

What does ‘verifying subcontractors mean?’

Verifying subcontractors means checking the subcontractor's unique reference number and status with HM Revenue and Customs (HMRC) to ensure they are eligible to work under the CIS. This includes checking the subcontractor's CIS card or online registration, proof of identity and address, and VAT registration (if any). This process is essential to ensure that the subcontractor is paying the correct amount of tax and that the contractor is not falsely classifying employees as self-employed.

How do you make deductions and pay subcontractors?

Under the CIS, contractors must deduct tax and National Insurance contributions from the payments made to subcontractors. The deductions must be made at the appropriate rates by HMRC, and the contractor must submit the deductions to HMRC regularly. Contractors must also provide the subcontractor a monthly statement of payments and deductions.

How do you pay subcontractors?

After making the necessary deductions, contractors must pay the remaining amount to the subcontractor. It is important to keep accurate records of all subcontractor payments, including the amount paid, the date, and the subcontractor's unique reference number.

How do you pay HMRC?

Contractors must regularly submit the deductions made from subcontractors' payments to HMRC, usually every month. This can be done through the CIS online service, by phone or post. Contractors are also required to submit a monthly CIS return to HMRC.

What are the monthly CIS returns in the UK market?

In the UK, contractors registered under the Construction Industry Scheme (CIS) must submit a monthly CIS return to HM Revenue and Customs (HMRC). The CIS return is a summary of payments made to subcontractors during the month and the tax and National Insurance contributions deducted from those payments.

The return must be submitted to HMRC by the 19th of the following month, regardless of whether or not payments have been made to subcontractors during that month. Contractors need to keep accurate records of all payments made to subcontractors.

What are the penalties for a late CIS return?

If there is a failure to submit the payment on time, the respective individual will be prone to certain penalties. It is described in the table below:

Conclusion

The Construction Industry Scheme (CIS) is a set of rules established by the UK government to ensure that all subcontractors working in the construction industry are paying the correct amount of tax. Contractors must verify subcontractors, make deductions, pay subcontractors, and submit the deductions to HMRC regularly. It is important for contractors to understand the difference between CIS and IR35 and to ensure that they comply with both sets of rules. By following the rules and regulations of the CIS, contractors can ensure that they and their subcontractors are paying the correct amount of tax and avoid any legal issues.