The Construction Industry Scheme (CIS) is a tax system for businesses in the construction sector. It ensures that contractors deduct tax from subcontractor payments and submit it to HMRC. Understanding CIS is key to staying compliant and managing cash flow effectively.
Who Needs to Register for CIS?
CIS applies to:
- Contractors – Businesses or individuals that pay subcontractors for construction work, including those spending £3 million+ annually on construction.
- Subcontractors – Those carrying out construction work for a contractor, including sole traders, partnerships, and limited companies.
Key Responsibilities
For Contractors:
- Register with HMRC before engaging subcontractors.
- Verify subcontractors with HMRC to apply the correct tax rate (20% for verified subcontractors, 30% for unverified, or 0% for gross payment status).
- Deduct tax correctly and submit it to HMRC.
- File monthly CIS returns on time to avoid penalties.
For Subcontractors:
- Register with HMRC to avoid higher tax deductions.
- Apply for gross payment status to receive full payments without deductions.
- Keep accurate records of income and CIS deductions.
- File self-assessment tax returns (if self-employed) to claim back any overpaid tax.
Common Pitfalls to Avoid
- Late registration – Failing to register can result in fines.
- Worker misclassification – Incorrectly classifying workers as subcontractors instead of employees can create tax liabilities.
- Late CIS returns – Monthly returns must be submitted on time to avoid penalties.
- Incorrect deductions – Failing to verify subcontractors can lead to under- or over-deductions.
CIS and the VAT Reverse Charge
Since 2021, the VAT reverse charge applies to certain construction services. Instead of charging VAT, subcontractors must notify contractors to account for VAT on their behalf. Contractors must ensure compliance with both CIS deductions and VAT rules.
How We Can Help
CIS can be complex, but getting it right is essential.
📞 RBS Chartered Accountants in London, Canary Wharf – Get in touch today for expert CIS support.