The construction industry is a specialist sector, and as such, it has its own unique tax codes and laws that need to be followed.
These fall under the Construction Industry Scheme, which sets out the obligations that contractors and subcontractors need to be aware of when working within this industry. Figuring out exactly what you need to do depending on which party you are and how to stay on the right side of the law can be a little tricky, but that is why we have written this article. We want you to know all about CIS, and by the end of this article, you will know everything you need about the HMRC CIS tax.
That’s a lot of information already, but there is so much more than you need to know when it comes to this tax. So, we are going to be looking at everything you need to know about CIS and giving you the tax advice that you need.
What Is CIS?
We have already looked at some of the background information about what CIS is, but under this subheading, we are going to go a little further into the specifics. CIS stands for Construction Industry Scheme and what happens under this scheme is that a contractor will deduct money from what they pay their subcontractor, and give this to HM Revenue and Customs. The reason for these deductions is that they count towards the subcontractor’s tax and National Insurance contributions as advance payments. However, this is only legal if the contractor has registered with the scheme. You might be wondering if these deductions can still be taken if the subcontractor is not registered under the CIS and the simple answer is yes they can. In fact, the subcontractor will have a higher amount taken if they are not a CIS registered contractor.
In a poll undertaken by Ipsos MORI on behalf of HMRC in October 2010, Contractors and Subcontractors were asked; “Why you think that Her Majesty’s Revenue & Customs operates the Construction Industry Scheme?”. Their responses are shown below.
To ensure that income tax gets paid
To stop construction businesses avoiding taxes
To stop subcontractors avoiding taxes
Who Counts As A CIS Contractor/Subcontractor?
You should be prepared to register as a contractor if you pay subcontractors for any construction work that they have completed.
You need to make sure that you are seeking out UK tax advice before you start deducting pay from your subcontractors in order to make sure you are taking the right amount. Even if your business does not do construction work, you might still need to be prepared to register as a contractor. However, this is only going to be the case if your business has spent more than an average of £1 million per year or more on construction in a three year period. For this reason, it is important that you go through your business spending with a fine tooth comb, and figure out if this could apply to you.
If you are someone who completes and gets paid for work by a contractor, then you need to register as a subcontractor.
In some cases, you might fall under both categories, and you might not know how you should register. You need to ensure that you are registered as both if this is the case for you.
What Work Is Covered Under CIS?
CIS covers most work in the construction industry. This includes but is not limited to preparing the site, demolition, alterations or repairs, decorating and many other subcategories that fall under this bracket. You will also be covered by CIS services if you are completing any construction work to roads, bridges or any other civil engineering work that needs to be completed. This HMRC tax service ensures that any work being carried out to a permanent or temporary building or structure is covered by the same obligations across the entire country.
There are, however, a few exceptions to the CIS regulations. You are not going to need to register as either a contractor or a subcontractor if you only do certain jobs within the industry. If you only work on the architecture side or the surveying side, then you are exempt from CIS tax. Likewise, if you deliver the materials to the construction site but do not complete any work on the site, you will also be exempt. Or, if you are providing a service such as carpet fitting, this does not fall under the CIS tax, and therefore the CIS tax rules will not apply to you.
What If You Don’t Comply With CIS Regulations?
Something that you do need to know is that even if your company is based outside of the UK, if you operate within the country, CIS tax is going to apply to you. You will need to ensure that you are following all the rules laid out under this scheme to be compliant with the UK tax law.
If you fail to register as a CIS contractor, then there could be large fines for you to pay. The CIS was introduced to ensure that everyone is treated the same in regards to tax, and failure to comply with these regulations could result in expensive penalties for you to pay. It isn’t only money that you could risk, though; your entire operation could be halted if you are found to be non-compliant under CIS. Many of these issues can be quite difficult to solve, and you are not going to be able to conduct your business if it is not within the law. So, it is best to ensure that you seek out tax advice if you are not sure about something.
Getting Paid As A CIS Subcontractor
You might think that it is fairly straight forward to be paid under the CIS and it is as long as you are careful. As a subcontractor, you will have a standard deduction of 20% taken out of anything that you earn, which will go towards an advanced payment of your tax and National Insurance. However, you need to make sure that you are giving the correct legal name of your company to the contractor in order to avoid any issues. If you make even the slightest mistake, they might not be able to verify that you are registered with CIS, which will mean that your deduction will rise to 30%.
Do ensure that you are checking your invoice for errors when it comes to you and make sure that everything is correct before you proceed. As a contractor, you need to know that the following are not eligible for HMRC CIS tax:
• Unusable Equipment
• Plant Hire
To get the most out of this scheme, you need to ensure that you register as a subcontractor before you start completing construction work.
How Do You Register For CIS?
Registering as either a subcontractor or a contractor is not going to be a difficult process. The first thing that you are going to need is your company’s legal name, meaning the one that it is registered under for everything else. If you want, you can also provide your trading name as this might be useful for when it comes to payments. You will also need to have your National Insurance Number on hand so that HMRC can verify that it is you registering your business.
Your business will also have its own Unique Taxpayer Reference that you are going to need to complete the CIS registration process. And, if you are VAT registered, you are going to need to provide this number as well. Once you have got all of this information to hand, all you need to do is go online and fill out the application form. Or, if you want, you can contact HMRC and get them to send you physical forms.
Registering for CIS as a Contractor
To register for the Construction Industry Scheme (CIS) you’ll need:
• your legal business name – you can also give a trading name if it’s different to your business name
• your National Insurance Number
• the unique taxpayer reference number (UTR) for your business
• your VAT registration number (if you’re VAT registered)
If you’re a subcontractor and a contractor (you pay subcontractors to do construction work), you’ll need to register for CIS as both.
Registering for CIS as a Subcontractor
Registration under CIS is in addition to registration as self-employed for self-assessment, not instead of registering as self-employed. If you are already registered as self-employed, but need to register under the CIS scheme, you should contact the CIS Helpline – 0300 200 3210. You will need your self assessment Unique Tax Reference (UTR) number when you start work. If you are not yet registered as self-employed, you can register for both at the same time. Call the helpline and they will talk you through it.
Keep A Record Of Your Construction Work
The final piece of CIS tax advice that we have for you is that you should always keep a record and this is going to be relevant whether you are a contractor or a subcontractor. If you keep good tax records, then when the tax year is over, you might find that you don’t need to consult a tax advice network. Instead, you will be able to go through everything that you have done through the year and work out exactly what you owe, and what could potentially be owed back to you. You should do your best to keep a record that includes the following:
• Any benefits that you have claimed through the year
• Receipts for expenses you may have incurred
• P60 or p45
• CIS remittances that show the tax you paid based on your income
• Any property investments or income
If you have these records, you will find it far easier to ensure that you have paid the correct amount of tax at the end of the year when you are filling out a self-assessment.
Hopefully, you have found this article helpful, and now know everything that you could possibly need to about CIS Tax. Remember, if you are a subcontractor under CIS, you are going to have a better time with your tax deductions, and if you are a contractor but you are not already registered, we recommend that you do this as soon as possible. If you need any further CIS UK tax advice, then contact HMRC to get this information.