What is CIS tax?
The Construction Industry Scheme (CIS) is a tax paid to HMRC by contractors and subcontractors. It is designed to increase the revenue collected from the construction industry. Contractors deduct a percentage from a subcontractor’s wage and pass it directly to HMRC. The deductions are viewed as advance payments towards the subcontractor’s tax and National Insurance (NI).
If you are a contractor, you must submit a CIS tax return that informs HMRC of the amount of CIS tax that you have deducted from your subcontractors (this lets them know how much you owe to the government). You must submit this to HMRC before the 19th of every month to avoid receiving a penalty.
Registering for CIS
First of all, you’ll need to register for the CIS. Only certain contractors need to be registered, so the relevant conditions are outlined below. As you’ll see from this section, the process of registering differs between contractors and subcontractors.
You should register as a contractor if you pay subcontractors for construction work or your business spends more than £1 million a year on construction in any 3 year period, even if your business doesn’t do construction work.
To register for the CIS as a contractor, you must first register with the government as an employer. Once you’ve done this, you will receive a letter from HMRC detailing the process of becoming a CIS employer.
If you are a contractor, you must not only register with the HMRC but also verify that your subcontractors are registered too. You’ll then need to ensure you pay your subcontractors, deducting tax from their pay as required, and submit monthly CIS returns to prove this to HMRC. You’ll also have to let HMRC know about any updates to your business, such as changes in address, business name, partners, etc.
You should register as a subcontractor if you do construction work for a contractor. As a subcontractor, the main thing you need to do is to register with HMRC. Like contractors, you’ll also need to report any changes to your business to HMRC.
The process of registering for the CIS as a subcontractor differs depending on whether you are a sole trader or you work for a registered business. Sole traders with an existing unique taxpayer reference number (UTR) can apply online. As a business, you’ll need to use the form CIS305 (you can find more information on this here).
What work falls under CIS?
Most construction work on permanent or temporary buildings or structure and civil engineering work, like roads and bridges, falls under CIS.
Contractual work includes:
- Preparing the site e.g. laying foundations and providing access works
- Demolition and dismantling
- Building work
- Alterations, repairs and decorating
- Installing systems for heating, lighting, power, water, and ventilation
- Cleaning the inside of buildings after construction work
There are, however, some exceptions. You do not have to register if you do any of the following jobs:
- Architecture and surveying
- Scaffolding hire (no labour)
- Carpet fitting
- Making materials used in construction
- Delivering materials
- Work on construction sites that is clearly not construction e.g. site facilities or running a canteen
It’s always advisable to check your status and establish if you fall under the CIS scheme. If you do, feel free to contact us and we will advise you accordingly.
What expenses can you claim for with CIS?
There is a range of reasonable expenses that you can claim back as part of your Self-Assessment tax return. This is because they are classed as essential for your work and do not count towards your taxable income. Some expenses that construction workers can claim for are:
- Materials needed to perform a job
- Required equipment and tools
- Travel costs for work
- General business management costs
- Accountancy fees
How to submit a CIS return
To submit your CIS returns, you’ll need an email address, Employer Reference Number (ERN), and 13-digit Accounts Office reference number. Once you’ve got all of this information together, you can complete and submit your monthly returns online here.
What happens if you don’t submit a CIS return?
The penalty for failing to submit a CIS return late, even by one day, is a £100 fine. This rises to £200 after two months, and again after six months to £300 or 5% of the CIS deductions on the return. If you submit your CIS return more than 12 months late, you could face an additional fine of £3000 or 100% of the CIS deductions on the return in question, whichever is the higher amount.
This is why it’s so important to make sure that your finances are well managed and that your returns are submitted on time each month.
What can we do for you?
Whether you are already registered for CIS and you’re looking for a helping hand, or you require advice regarding CIS tax returns, we can provide you with the expertise needed. We support businesses of all sizes with their CIS tax returns and accounts preparation.
If you appoint us to deal with your CIS returns, we’ll do the following on your behalf:
- Verify subcontracts
- Submit the CIS returns on a monthly basis
- Correspond to HMRC on your behalf, keeping you updated throughout the process
- Send you email reminders every month to inform you when the return is due
- Provide subcontractors statements every month
- Prepare your end of year self-assessment tax return, calculating tax liability and/or refunds as required
We make sure to keep on top of any changes to the regulations surrounding CIS so we can let our clients know of any changes that might impact them as soon as possible.
How much does it cost?
Our fees for CIS returns start from as little as £25 per month depending on the number of contracts. We work with many contractors in Derby and Nottingham to ensure everyone is compliant and has their CIS tax returns filed correctly and effectively.
For more information and advice about CIS returns please contact us on 0115 824 0555 or email us via our contact form below.