What is CIS?
The Construction Industry Scheme (CIS) is a tax system that makes sure contractors in the construction industry deduct tax from subcontractors before paying them.
Who Does CIS Apply To?
- Contractors: People or businesses that hire others for construction work.
- Subcontractors: People or businesses that do construction work for contractors.
What Counts as Construction Work?
CIS covers most construction jobs, like site preparation, building work, demolition, repairs, and even painting.
How does CIS work?
When a contractor pays a subcontractor, they have to deduct some tax from the payment before sending it to the subcontractor.
- Registered Subcontractors: Deduct 20% for tax.
- Unregistered Subcontractors: Deduct 30% for tax.
- Gross Payment Status: If a subcontractor has “gross payment status,” no tax is deducted, and they pay their tax directly to HMRC later.
Who needs to register for CIS?
- Contractors: Must register with HMRC.
- Subcontractors: Don’t have to register, but it’s a good idea! Registered subcontractors can get a lower tax deduction (20% instead of 30%).
Contractor Responsibilities
- Verify Subcontractors: Contractors need to check if their subcontractors are registered for CIS before they pay them.
- File Monthly Returns: Contractors must file monthly reports to HMRC about the payments they made and the tax they deducted.
- Issue written statement to every subcontractor they make a deduction from, each time they are paid under the CIS scheme.
Deadlines
The CIS scheme has several key deadlines that contractors and subcontractors need to be aware of to ensure compliance with HMRC regulations. Here’s an overview of the main deadlines under CIS:
- Monthly Returns Deadline (Contractors)
- When: The 5th of every month is the deadline for submitting the CIS return for the previous tax month.
- Contractors must submit a CIS300 monthly return to HMRC detailing the payments made to subcontractors and any tax deductions taken during the previous month.
- Example: For payments made in the tax month from 6th September to 5th October, the CIS return is due by 5th November.
- Payment Deadline for Tax Deductions (Contractors)
- When: Tax deductions made from subcontractor payments must be paid to HMRC by the 22nd of the following month if paying electronically.
- Example: For tax deductions made between 6th September and 5th October, payments must reach HMRC by the 22nd October if paying electronically.
- Verification of Subcontractors
- Before making a payment to a subcontractor, contractors must verify with HMRC whether the subcontractor is registered for CIS.
- There is no fixed deadline for this, but it must be done before the first payment is made to a subcontractor to ensure the correct tax deduction rate (20%, 30%, or gross).
- Year-End Deadlines
- Self-assessment (Subcontractors): Subcontractors under CIS need to complete their self-assessment tax returns for the financial year (6th April to 5th April) by the following 31st January (online) or 31st October (paper return).
- This return will allow subcontractors to claim any tax refunds if too much tax was deducted during the year.
Penalties for missing deadlines:
- Late filing of CIS monthly returns can result in penalties, starting from £100 for being just 1 day late, increasing the longer the return is overdue.
- Late payments of deductions can lead to interest charges and penalties.
