CIS Tax Advice
Construction Industry Scheme (CIS) Tax Advice to help quickly and decisively negotiate the CIS minefield.
CIS has had many faces and changes since it was introduced in 1971 to stop tax evasion across the UK construction sector.
HMRC defines that CIS is a scheme where a contractor must make a deduction in certain situations when making a payment to a subcontractor under a contract that covers construction operations.
CIS sets out the rules for how payments to subcontractors for construction work must be handled by contractors in the construction industry and certain other businesses.
Contractors and sub-contractors engaged in construction operations are widely defined for these purposes, and include construction, alteration, repair, extension, demolition or dismantling of buildings or structures (whether permanent or not).
Are you a mainstream contractor or a deemed contractor?
A CIS mainstream contractor is a business that pays subcontractors for construction work. This would usually be a construction business for example a property developer or builder. However, businesses that do not usually operate in the construction industry can also be caught. A CIS sub-contractor would typically be a business carrying out construction work for a contractor (including by sub-contracting this to another person). It is possible to be both a contractor and a sub-contractor. Certain types of work are exempt from the scheme, including professional work e.g. architecture and surveying, scaffolding hire, or delivering materials. However, if a single contract covers some construction operations as well as other matters, HMRC will treat the whole contract as falling within CIS. This is the case even if separate invoices are raised for the different jobs.
Even if a business is not strictly a construction business, it may still be affected by CIS, as a result of being a Deemed Contractor. Generally, a business will be a deemed contractor, if payments under construction contracts exceed £1 million on average per accounting period over three years (although the government indicated in the most recent budget that the definition of a contractor would be clarified).
What are contractors’ and subcontractors’ obligations?
Subcontractors must register with HMRC in order to be paid gross or, if certain conditions are not met, net of 20% CIS tax. If a subcontractor chooses not to register, the deduction would amount to 30%. These deductions count as advance payments towards the subcontractors’ tax and national insurance bills.
- Register with HMRC
- Verify the identity of its subcontractors
- If subcontractors are not registered for gross payment, contractors have to deduct tax from payments to sub-contractors and providing statements to sub-contractors to inform them of this
- Make monthly returns to HMRC
- Provide monthly statements to those subcontractors paid under deduction
- Pass directly to HMRC any deductions made from payments to those subcontractors who are not gross paid
How can our Employer Solutions team help with your CIS obligations?
Our Employer Solutions can support and assist you across several areas, including:
- CIS registration for either the contractor or subcontractor
- Gross payment status application
- Employed status and IR35
- Umbrella tax compliance
- HMRC CIS compliance review
- Employment agencies
Our team will act quickly and decisively to help you negotiate the complexities and risks associated with CIS. We will help and support you to keep your business operating efficiently and effectively, avoiding contractor downtime, and maintaining the morale of your workers.
Areas of CIS risk
There are several CIS problem areas including the costs of materials used by a subcontractor from whom deductions are made and the use of plant hire.
Our Employer Solutions team have seen a number of recent enquiries by HMRC into non-compliance with CIS including:
- How materials have been reported and the split out on invoices raised
- When did the construction work actually start
- Status of workers
- Mixed contracts – if the total contract has been included, rather than just part
- Have the rules been applied to all construction payments, for instance:
- a business involved with installing entry phones isn’t within the remit of CIS, but a company providing door access systems is the treatment of project management is frequently considered to be outside the scope of CIS when actually it is caught
- carpet fitting is not a CIS operation, but fitting lino is!
Our Employer Solutions team can undertake a CIS healthcheck either as a standalone review or as part of a PAYE Healthcheck. The CIS rules and regulations can be impenetrable for both contractors and sub-contractors, yet HMRC expects full compliance.
Penalties for failures can be very expensive, accruing quickly and difficult to resolve – a fact that can have a direct impact on your operational efficiency. We can support you by ensuring you have followed the rules and reduce your compliance risk.