The Construction Industry Scheme is used to collect taxes from subcontractors in the construction industry as a future payment towards that subcontractor’s employment taxes.
Read below for further information on Contractors and Subcontractors and please feel free to contact us for help and advice on CIS. Contact us using the form, via email: email@example.com or call us: 01483 338438.
A contractor, for CIS purposes, is a person or company which employs subcontractors to perform construction work for them.
You will either be in the business of construction, in which case, if you use subcontractors, you must register as a CIS Contractor. Or you may not be in the business of construction but you are using subcontractors, in which case you only need to register if the value of the work exceeds £1m per year in a 3 year period.
Being registered as a contractor means you must pay over taxes to HMRC each month. The taxes are collected by paying your subcontractors invoices net of tax. The tax deducted is dependent upon the tax rate of the subcontractor.
The subcontractor rate must be verified with HMRC once every 3 tax years. The rate will either be gross rated which means no tax should be deducted or 20% rated which means 20% of labour (and various other) costs should be deducted. If the contractor cannot be verified, then deduction will be at 30%.
You must report all relevant subcontractor costs on a return each month to HMRC, this is due on the 19th of the month in the month the period ends e.g., the June return which is for the tax period 6th May to 5th June is due on 19th June. The payment of tax is also due on this date.
As a Contractor it is your duty to provide the Subcontractor with a monthly PDS (Payment and Deduction Standard) alongside their payment. A PDS is a statement showing the amounts paid and the deductions made from those payments. A PDS must include the Contractors name, employers tax reference and the end date of the tax month in which the payments were made. You must also include the subcontractors name, UTR, personal verification (but only if the subcontractor could not be verified and a deduction at the higher rate has been applied), gross payment made, cost of any materials that has reduced the amount upon which the deduction has been applied and the amount of the deduction. The PDS must be provided within 14 days after the end of the tax month to which it relates. The PDS can cover all payments in that period or individual PDS’s can be provided for each payment made. A Subcontractor can request replacements at any time and as the Contractor you must adhere.
Blue Matrix can prepare and submit your CIS returns each month for you. Please contact us using the form, via email: firstname.lastname@example.org or call us: 01483 338438.
If you perform construction work for a contractor then you should register for CIS. If you do not register, the contractor will deduct 30% tax off your invoices (not including material and other costs) and pay it to HMRC. You will not be able to reclaim this unless you register with HMRC.
If you do register, you will either be standard rated at 20% or gross rated at 0%. The deduction is largely calculated by taking your invoice amount net of VAT and deducting the material costs.
HMRC class this tax as an advance payment towards PAYE/NIC. Therefore if you have employees, upon calculating your PAYE/NIC each month, you should deduct the CIS taxes before making payment to HMRC. If, at the end of the tax year you are due a repayment of CIS suffered, then you can offset the CIS against Corporation Tax and VAT however this cannot be done until after 23 April once the tax year is finalised. When requesting a repayment the earliest you can request a repayment is 23 April. If you are self-employed, the amount of CIS tax will be deducted when calculating your tax liability each tax year.
Blue Matrix can prepare your payroll or self-assessment for you ensuring you reclaim all the CIS taxes you have suffered. Please contact us using the form, via email: email@example.com or call us: 01483 338438.