CIS stands for Construction Industry Scheme (CIS). They help regulate the payments construction contractors make to subcontractors who carry out work for them. CIS contractors must complete a CIS return each month so that HMRC know which subcontractors have been paid, and how much.
Every contractor who uses subcontractors to carry out construction work must register for CIS with HM Revenue and Customs. CIS subcontractors can be self-employed individuals or a limited company and should be registered with HMRC under CIS. All construction contractors are responsible for ensuring that the subcontractors they hire for work are verified with HMRC and must complete a CIS tax return each month for each subcontractor, as well as make CIS payments to HMRC.
Verifying your subcontractors
Every new subcontractor needs to be verified with HMRC before any work can start. This will allow the contractor to confirm the subcontractor’s tax status. There are 3 tax rates; 0% for a subcontractor that has gross payment status, 20% for subcontractors who are registered for CIS, and 30% if a subcontractor is not registered, or HMRC cannot verify them.
You will also need to verify a subcontractor if you have used them before, but they have not been included in a monthly CIS return for the current or previous 2 years.
How do you complete a monthly CIS return?
As a construction contractor, you need to submit a CIS return monthly to tell HMRC about any payments that you have made to your subcontractors. You will need to keep thorough and accurate financial records, and these will show HMRC the amount you pay your subcontractors, as well as the details of any deductions you have made.
If work slows, or you are waiting for a new project to start, and you do not use any subcontractors for a month, then you will still need to submit a nil CIS return for that period. If you do not expect to pay for work for the next few months, you can ask them to temporarily mark your account as inactive for up to 6 months.
You can submit your CIS return direct to HMRC either using their digital service here or by using appropriate software. The details you provide on your CIS return will inform the HMRC which subcontractors you have paid, the amount you have paid them, and any tax deducted.
CIS returns must be submitted by the 19th of each month, with the details of the previous month’s tax activities. The tax month starts on the 6th of each month and ends on the 5th of the following month.
Keeping your subcontractors informed
You must issue a payment and deduction statement to your subcontractors each month under CIS. This makes everything transparent for your subcontractors, and they have the details they need for their tax return submission to HMRC.
Making CIS payments to HMRC
The CIS deductions from the payments you have made to your subcontractors should be paid to HMRC by the 22nd of each month (or the 19th by post).
Passman Leonard Construction Accounting Services
We can deal with the CIS process and returns for you – it is essential you get it right. We offer great value and fast, accurate accounting support to small and medium-sized construction businesses around London.
Our small business accounting starter packages will help you understand your finances and ensure that you meet legal and compliance requirements with Companies House and HMRC whilst ensuring the tax efficiency of your business.
Get in touch today on 01895 434515 or contact us via our email address info@passmanleonard.co.uk if you have any questions about the CIS process or CIS returns.
