Every building contractor who is registered with the HMRC needs to file a Construction Industry Scheme (CIS) return every month. This can be tricky for a layperson to handle on their own, which is why we always recommend working with a professional accountant who is well-versed in construction law. In this blog post, we tackle a few of the basics of CIS and explain how an accountant can help you out.
What is a CIS return?
A CIS return gives details of how much tax was deducted from all the subcontractors that a contractor hired in a given month. The deduction counts as part of the subcontractor’s tax and national insurance contribution.
A tax month for CIS purposes begins on the 6th of a given month and ends on the 5th of the following month. The contractor needs to fill up the relevant form and submit it to HMRC by the 19th of the following month, i.e. within 14 days of the month-end.
If you are paying electronically, you get an extra three days to complete the payment. The form can be submitted through CIS software or the HMRC website. You need to register with HMRC as a contractor if:
- You hire subcontractors for construction work, or
- Your business has spent over £3 million on construction in the 12 months after you made your first payment
If you are a contractor who works as a subcontractor with a bigger firm, you can offset the CIS you have paid on behalf of your subcontractors with the CIS that has been deducted from your paycheck. It is important to note here that CIS returns only apply to the cost of the labour that a subcontractor has provided, not the cost of materials or VAT.
There are exemptions relating to activities that are not directly related to construction, such as surveying, scaffolding hire or making/delivering construction materials.
Verifying subcontractor status
Before any construction work begins, contractors need to verify each subcontractor’s tax status with HMRC and whether or not they are registered with HMRC as subcontractors.
If a subcontractor has been verified earlier but not included in the current or previous two years’ returns, they need to be verified again. The documents you need for this are:
- Contractors – Employer Reference Number, Unique Taxpayer Reference number, Accounts Office reference
- Subcontractors – UTR number, National Insurance number (if they are a sole trader), company registration details (if they are a company), partnership trading details (if they are a partnership)
Subcontractors will fall under one of three tax deduction categories:
- 0% if the subcontractor has gross payment status
- 20% if they are registered as a subcontractor under HMRC
- 30% if they are not registered
As a contractor, you will also have to supply each contractor with a CIS statement containing details of whatever deductions you have made.
What are the benefits of the CIS?
One of the critical benefits of CIS is that contractors can deduct a percentage of the gross payment they make to subcontractors, reducing their taxable income. This helps contractors lower their tax liability and manage their finances more effectively.
Another advantage of CIS is that it helps contractors keep accurate records of their payments and deductions, reducing the risk of errors and simplifying the tax process. This makes it easier for them to stay compliant with tax laws and regulations, reducing the risk of fines and other penalties for non-compliance.
CIS also provides subcontractors with a secure and transparent system for receiving payment and having the correct amount of tax deducted from their payments. This protects them and ensures they receive the total amount of their earned income.
Why work with a CIS accountant?
A professional accountant saves you the trouble of calculating your CIS returns and keeping track of deadlines. Modern accounting businesses like Lyel are equipped with the latest cloud accounting software to help you sort your records, run payroll and stay on top of how your business is doing. Among the services they offer include:
1. CIS registration
An accountant can help you register with HMRC and determine whether the subcontractors you work with should be classed as subcontractor employees or treated as freelancers. They also help you get a UTR number and set yourself up on a cloud accounting platform.
2. Calculations
An accountant calculates what deductions and payments you must make every month, including any relevant exemptions. They also verify how much deduction to make for each subcontractor based on whether or not they are registered with HMRC.
3. Record maintenance
An accountant ensures that the full and final details of each CIS return are maintained in case HMRC ever wants to conduct an audit.
3. Record maia4. Financial advicentenance
In addition to paying taxes every month on your behalf, an accountant can advise you on how to plan your finances so you have enough money to pay HMRC without disrupting your cash flow.
Over to you
Different CIS rules apply to you, whether you are a contractor, a subcontractor, or both. Let Lyel Accountants figure out the nitty-gritty and ensure you are fully compliant with HMRC and Companies House every month. Our services cover everything – from maintaining subcontractor records to preparing and submitting your monthly CIS returns.
We will verify your subcontractors online with HMRC, determine the correct deduction rate for them, handle any CIS-related issues, and advise you on payment obligations and due dates to avoid penalties. So why wait? Let us help you run your business with ease. Contact our CIS accountants today and minimise your stress!
Frequently Asked Questions (FAQs)
If you are a building contractor using subcontractors, then potentially yes. You need to file your CIS monthly return within 14 days after the end of the tax month (ending on the 5th of the month). Submit your returns for the previous month to HMRC by the 19th of the current month following the last tax month.
HMRC is extremely strict about all returns! Failing to submit your CIS return on time could lead to monetary penalties or stricter legal action, depending on how late you are. Bear in mind that even if you have not paid any subcontractors in a given month, you still need to file a ‘nil’ return – you can’t skip a month for any reason whatsoever. If you will not be hiring any subcontractors for a while, you can submit a request to HMRC to mark your account temporarily inactive.
