Special tax rules apply to subcontractors working in the construction industry. The Construction Industry Scheme (CIS) outlines these rules and how payments are to be processed by contractors.
CIS Tax Returns & Subcontractor Accounting Services
As the Construction Industry Scheme (CIS) outlines the rules between contractor and subcontractor payment deductions, there are often tax refunds due to subcontractors. In this situation, Perrys can assist in reclaiming these overpayments with our comprehensive CIS Tax Return service.
Our specialist team of building and construction industry certified accountants are able to help subcontractors prepare CIS tax returns, accounts and other paperwork needed to keep them HMRC compliant.
What is the Construction Industry Scheme (CIS)?
The Construction Industry Scheme (CIS) is a scheme set up by the HMRC where contractors in the construction industry deduct money from subcontractor payments. They will then pass this on to the HMRC.
These deductions will become advance payments towards the tax and national insurance of the subcontractor. Both the contractor and subcontractor should register for the scheme before beginning work.
What is a contractor?
A contractor is an individual or business that hires subcontractors to perform work on a construction project. Contractors are typically responsible for overseeing the project, managing resources, and ensuring that work is completed according to specifications and regulations.
It is the contractor’s responsibility to ensure that they deduct the required amount from the subcontractor payments and pass it on to the HMRC.
What is a subcontractor?
A subcontractor is an individual or business entity hired by a contractor to perform specific tasks or services on a construction project. Subcontractors are often skilled tradespeople who carry out specific aspects of the project under the direction of the contractor.
The subcontractor does not need to do anything for CIS aside from register, although this is not technically mandatory. However, it is in their best interest to do so, as failing to register will result in a higher deduction rate.
Work covered by CIS
With specialist experience within the construction industry, Perrys’ can assist in the tax rules applied to firms affected by CIS. Our expert team can confidently guide your business and assist with the following:
- Subcontractor HMRC deductions for National Insurance and tax purposes
- Day-to-day bookkeeping services
- VAT returns, advice and information
- PAYE services for construction companies
- HMRC Contractor Registration
- Deduction statements for subcontractors
- Monthly HMRC returns
- Full CIS compliance & CIS registration
Our accountants provide a full-service managed accountancy package to help to keep your tax, VAT, and specialist tax issues in good order.
What are the CIS deduction rates?
The deduction rates for CIS are as follows:
- 30% for unregistered subcontractors
- 20% for registered subcontractors
- 0% for subcontractors with ‘gross payment’ status.
Use our free CIS tax deduction calculator to work out any necessary tax deductions.
What is gross payment status?
For gross payment status, the contractor will pay the subcontractor in full, and it lies with the subcontractor to pay all their taxes and National Insurance at the end of the tax year through Self Assessment.
To qualify for this status, subcontractors need to demonstrate that:
- They are tax compliant (i.e. have a proven history of paying tax and National
Insurance on time) - Have a business based in the UK and in construction industry
- Have a bank account tied to their business
On top of this, HMRC will also inspect their turnover for the last 12 months. To qualify, their turnover must be:
- £30,000 or more for sole traders
- £30,000 for each partner in a partnership. Failing this, it can instead be a minimum of £100,000 for the whole partnership
- £30,000 for each individual director of the company. Failing this, it can instead be a
minimum of £100,000 for the whole company
Note: this is ignoring the cost of raw materials and VAT.
On top of the criteria list, companies owned by 5 people or fewer must have an annual turnover of at least £30,000 per person.
Construction Accountants in London
With specialist experience within the construction industry, Perrys’ specialist accountants can assist in the specialist tax rules applied to firms operating within the construction industry. Our expert team can confidently guide your business and assist with the following:
- Subcontractor HMRC deductions for National Insurance and tax purposes
- Day-to-day bookkeeping services
- VAT returns, advice and information
- PAYE services for construction companies
- HMRC Contractor Registration
- Deduction statements for subcontractors
- Monthly HMRC returns
- Full CIS compliance & CIS registration
Our accountants provide a full-service managed accountancy package to help to keep your tax, VAT, and specialist tax issues in good order.
Perrys Chartered Accountants in London, Kent and South East England
Our team work alongside businesses operating throughout London and Kent. We can also help businesses within the South East of England and further afield with construction tax accounting issues and VAT queries.
CIS FAQs
What is the difference between CIS and PAYE?
The CIS is specifically designed for contractors and subcontractors in the construction industry. With this, contractors will deduct money from a subcontractor’s payments and give it to the HMRC. This contributes towards the subcontractor’s tax and National Insurance.
On the other hand, PAYE is the system used to collect income tax and National Insurance contributions from employees’ earnings across various sectors – not just construction. Under PAYE, employers deduct income tax and National Insurance contributions from their employees’ salaries or wages before paying them.
Is CIS different to self-employed?
Being self-employed refers to working for oneself rather than being an employee of another person or business. While many self-employed individuals work in construction and may participate in the CIS scheme, self-employment encompasses a broader range of industries and tax obligations managed through the annual Self Assessment tax return process.
Do all subcontractors have to be CIS registered?
No, they do not. However, subcontractors will be at a disadvantage if they have not
registered as their deduction rate will be 30%. Subcontractors that have registered with the CIS will instead have a deduction rate of 20%.
What happens if a contractor doesn’t pay your CIS?
If a contractor fails to pay the correct amount of CIS deductions to HMRC, it can result in penalties and fines for the contractor. These penalties can vary depending on the severity of the non-compliance and may include financial penalties and interest on overdue payments.
For subcontractors, the consequences of a contractor not paying CIS can be significant. They may not receive credit for the taxes and National Insurance contributions deducted from their payments, leading to issues with their tax records and potential underpayment of taxes. Subcontractors may also face difficulties in obtaining proof of income for various purposes. In severe cases, subcontractors may be held jointly liable for the unpaid CIS deductions if HMRC is unable to recover the funds from the contractor.
Furthermore, contractors who consistently fail to comply with CIS requirements may face legal action from HMRC, including prosecution for tax evasion or fraud. This can result in severe financial penalties, criminal convictions, and even imprisonment for those involved.
