TAX TOOLS TO HELP CONSTRUCTION
There are various requirements for contractors and subcontractors within the Construction Industry Scheme (CIS).
For contractors, they must verify subcontractors before making any payments to them. Verification is done online using the subcontractor’s UTR and National Insurance number if an individual, or UTR and Company Registration Number (CRN) if a limited company. By doing this HMRC will confirm the tax rate to be applied to the subcontractor, whether it be the normal rate of 20%, higher rate of 30% or no tax if has gross status.
The contractor is required to deduct tax on the labour element of the subcontractors’ payment and the tax is paid to HMRC. The contractor is required to issue the subcontractor with a payment and deduction statement showing the gross and CIS tax deducted amounts. A CIS return will need to be submitted monthly by the contractor to confirm to HMRC the subcontractors and amounts paid in that month.
The contractor has the option to offset any CIS on their subcontractors payments against CIS they have had deducted on their sales or against PAYE.
For subcontractors, registering as a subcontractor for CIS with HMRC is the very first thing to do. Without doing this, contractors will be unable to verify the subcontractor with HMRC and will be required to deduct 30% tax from the labour element of the subcontractor’s invoices.
Subcontractors are required to keep all of their payment and deduction statements they receive from their contractors. Should HMRC perform a check of a CIS refund claim, they will require these statements as proof of the CIS deducted.
At the end of the tax year (5th April), individuals are able to enter the total CIS deductions on their tax returns to offset against their tax liability for the year and potentially receive a refund. For limited companies, a separate claim for repayment of any CIS tax due back will need to be made. As part of this claim the company can offset the refund due against other taxes such as VAT and corporation tax.
For help and advice on the Construction Industry Scheme contact your local Perrys office today.
Article written by Jason Maunik