Attention all contractors. Are you aware of the Construction Industry Scheme (CIS) and how it affects you? If not, take note!
The CIS includes, with some exceptions, construction work including site preparation, decorating, demolition and refurbishment.
The CIS applies to construction work carried out throughout the UK even including territorial waters up to the twelve mile limit.
If you are a contractor who uses sub-contractors then under the CIS you must deduct money from payments to your sub-contractors and instead pay it to Her Majesty’s Revenue and Customs (HMRC). This takes the form of an advance payment of the sub-contractor’s tax and national insurance contributions.
You must register for the CIS if you are a contractor. This is defined as you pay sub-contractors for construction work or your business doesn’t do construction work but you spend an average of more than £1 million a year on construction in any three year period.
Register as a sub-contractor if you do construction work for a contractor. You do not have to register if you are a sub-contractor however if you do not register it could mean that stoppages by the contractor are at a higher rate.
If you are both a contractor and sub-contractor then register under both categories.
If you are not involved in the construction industry normally you may still fall under the CIS and be a “deemed contractor”. For example if your business is in in the catering industry but for whatever reason you have a significant construction spend perhaps on new premises which goes over the £1 million threshold in any three year period then you will be a “deemed contractor” until such time your construction spend falls below the threshold and you can satisfy HMRC of that.
If you are liable for the CIS then after registration you will be required to keep certain records and make a monthly return to HMRC which includes details of the amounts paid to each of your sub-contractors and any deductions.
Under the CIS, payments from contractors to sub-contractors must reflect the tax status of the sub-contractor. Thus if you are a contractor it is essential that you clarify that tax status with your sub-contractors and if in doubt, HMRC.
Any relevant deductions must be taken and paid to HMRC under the scheme. You must keep and retain accurate records including a statement of deductions to the sub-contractor ready for you to complete your monthly CIS return to HMRC.
Your monthly CIS return must be with HMRC within 14 days of the end of the tax month they are for. You risk penalties if you do not comply with that deadline. Returns can be filed electronically or by post.
Monthly returns must still be made even if you have not paid any sub-contractors during the period of the return.
If you think that you may fall under the CIS but would like some additional help and advice, please contact us to discuss how we could assist you.