No matter if you’ve been working in the construction industry for a while, or if you’re just getting your foot in the door, it’s likely that you would have heard of the Construction Industry Scheme, otherwise known as CIS. Although it can be tough to get your head around, we will look at what it is and why it’s in place.
What is the CIS?
CIS is a system in the United Kingdom for taxing contractors and subcontractors who are engaged in construction activities. It was introduced in 1971, by HMRC, to help reduce tax evasion by those working within the construction industry and it has been in force ever since.
Under CIS, contractors deduct money from a subcontractor’s payments and pass it to HM Revenue & Customs (HMRC). This money is known as ‘Construction Industry Scheme Deduction’ (CISD) and is paid over to HMRC as part of the subcontractor’s tax liability. Both contractors and subcontractors must be registered to the scheme before any construction work begins.
Subcontractors can register with HMRC for gross payment status if they meet HMRC’s tests which are dependent on past tax payments and turnover levels. If the subcontractor is not registered for gross payment status then a 20% deduction will be taken from all payments due to them by the contractor. If a sub-contractor isn’t registered under CIS then the contractor will need to deduct 30% until the sub-contractor is properly registered.
It is essential for anyone involved in the construction industry to understand their obligations under the scheme, including how to register with HMRC as these are legal requirements.
How to register
To register with HMRC, contractors and subcontractors must provide all relevant information to the revenue body. This includes details of their business, contact information and any payments made or received for construction activities. Once registered, HMRC will require contractors to deduct the relevant amount from sub-contractor payments.
By understanding CIS regulations and following them carefully, any construction business can ensure it is operating in a safe and compliant manner. This will help to reduce the risks of tax evasion and other sanctions, ensuring that contractors and subcontractors are protected from any legal or financial issues. With its regulations carefully followed, the Construction Industry Scheme can help to create a safe and secure environment for all those involved in construction activities.
What else does CIS do?
CIS also sets out how contractors and subcontractors should maintain records in order to comply with the scheme. This includes keeping records of payments, deductions and payments made to HMRC. Contractors must also provide CIS returns to HMRC on a monthly basis.
All contractors and subcontractors who are part of CIS should ensure that their accounts are kept up-to-date with all relevant information in order to comply with the regulations of the scheme. Non-compliance can result in penalties from HMRC and other sanctions, so it is important that everyone involved understands their obligations under CIS.
In addition to the regulations of CIS, contractors and subcontractors must also comply with relevant health and safety legislation. This includes provisions relating to insurance, risk assessments and safe working practices. Compliance with these regulations will help to ensure that everyone involved in the construction process is safe and that any accidents or incidents are minimised.
The Construction Industry Scheme is an important part of the UK taxation system, designed to protect both contractors and subcontractors from tax evasion. By following all relevant legislation, contractors and subcontractors can ensure that their business is compliant with the scheme and can help to reduce any risks associated with construction activities.
CIS should be taken into consideration when engaging in any construction activities. It is essential for contractors and subcontractors to understand their obligations under the scheme in order to remain compliant with the regulations and ensure a safe working environment.
By registering for CIS, ensuring accurate record keeping and complying with relevant health and safety legislation, contractors and subcontractors can help to minimise any risks associated with construction activities and ensure that their business is compliant.
Ultimately, the Construction Industry Scheme helps to protect both contractors and subcontractors from tax evasion. Through understanding its regulations and following them carefully, any construction business can ensure it is operating in a safe, compliant manner.
About us
At Calathea Accounting, we specialise in providing accountancy and finance support within the construction industry. We advise contractors, sub-contractors and tradespeople how to maximise their profits and reduce stress to enable them to reach their lifestyle goals.
You need clarity and certainty when it comes to running the finance function within your construction business – we offer a personalised approach to looking after your accounts and ensuring that your construction business is profitable.
Get in touch with us today on (0)333-090-4629 or drop us an email at help@calatheaaccounting.co.uk to discuss how we can support your construction business.
