If you are a contractor, the Construction Industry Scheme (CIS) is something that you will need to familiarise yourself with to avoid falling behind and facing penalties.
The Construction Industry Scheme (CIS) is a form of business tax that is applied to contracted work within the construction industry.
What do contractors need to do?
Ahead of paying a subcontractor to undertake construction work, you will need to register as a contractor for CIS.
You will also need to check whether the individual should be employed or should act as a subcontractor.
This can be difficult to differentiate, but subcontractors class as self-employed therefore should not be paid through PAYE. If the person should be employed by you and you treat them as a subcontractor, this runs the risk of incurring a penalty of up to £3,000.
You can find out more about checking individuals’ employment status here.
Once confirmed that the person should be subcontracted, you will need to verify them with HMRC, which will inform you of whether they are registered for the CSI, along with the deduction rate that you should apply.
It should also be noted that you will need to use commercial CIS software if you are verifying over 50 subcontractors.
When making payments, subcontractors are required to make CIS deductions, which will need to be paid to HMRC through the CIS payment scheme.
Monthly returns must also be submitted for the months that you have paid subcontractors. Whilst you do not need to submit a return during the months that no payments are made, HMRC should be informed of this.
What are the deduction rates?
As mentioned, HMRC should inform you of the deduction rate for each subcontractor, however, according to GOV.UK, the general rates are:
- 20% for registered subcontractors
- 30% for unregistered subcontractors
- 0% if the subcontractor has ‘gross payment’ status
Any costs from materials such as VAT, materials, equipment, etc that the subcontractor paid for directly should be taken away from the pay before deductions are made.
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