Simplify the Construction Industry Scheme with Sherwin Currid
Sherwin Currid: your Construction Industry Scheme accountants
Whether you are a subcontractor or a contractor, Sherwin Currid can help you with the Construction Industry Scheme and ensure you remain compliant.
What is the Construction Industry Scheme?
HM Revenue and Customs (HMRC) introduced the Construction Industry Scheme (CIS) back in 1971. It aim was to try to minimise the amount of tax evasion within the UK construction industry and also to protect construction workers from being employed illegally and hence taken advantage of .
The basic principle of CIS is that contractors take money from subcontractor’s payments, essentially their wages, in order to cover their tax and National Insurance contributions, instead of solely relying on self assessment tax return declarations. The scheme does not cover employees within the construction industry because they are covered by the Pay As You Earn (PAYE) payroll system.
Sherwin Currid has a team of experienced CIS accounting professionals who help many clients with their obligations and have a detailed understanding of the schemes requirements. If you have any questions about how the scheme operates or you would like us to support you with meeting the requirements of the scheme and handling the necessary paperwork, then please do not hesitate to get in touch with a professional CIS accountant.
Who is a contractor or a subcontractor?
You should use the following definitions to determine whether you are a contractor or a subcontractor. Further clarification can be found on the government website, or by talking to a CIS expert.
A contractor is a business or other concern that pays subcontractors for construction work.
Contractors may be construction companies and building firms, but may also be government departments, local authorities and many other businesses that are normally known in the industry as ‘clients’.
A subcontractor is a business that carries out construction work for a contractor.
What work is classed as construction work?
For the purposes of CIS construction work covers any construction work to a permanent or temporary building or structure. It also covers civil engineering work like roads and bridges.
The term construction covers preparing a site such as foundations or access work, demolition or dismantling, building work. alterations repairs and decorating, installing systems for heat, light, power, water and ventilation. It also includes the cleaning of the insides of buildings after construction work.
There are some exceptions where you do not need to register. Key examples of this include architecture and surveying, scaffolding hire (with no labour), carpet fitting, making materials used in construction including plant and machinery, delivering materials and work on construction sites that’s clearly not construction such as running a canteen.
What are my obligations under the CIS scheme?
If you meet the requirements for being a contractor or a subcontractor under the CIS scheme then you need to comply with the requirements of the scheme.
Requirements for CIS contractors
If you fall within the definition of a contractor for CIS purposes then you are required to register for CIS before you take on your first subcontractor.
When taking on a subcontractor you should ensure that you should not be taking them on as an employee and paying them via PAYE. You could receive a penalty if you get this wrong and do not engage with someone as an employee when they should be.
You will also need to check with HMRC that any subcontractors that you use are registered for CIS with HMRC.
When you pay your subcontractors then you will need to make deductions from their gross income and pay these deductions over to HMRC. These payments will count as advance payments towards the subcontractors tax and National Insurance bill.
Finally you will need to file monthly statements to HMRC and keep full CIS records or you will risk fines and penalties from HMRC.
Requirements for CIS subcontractors
If you are working as a subcontractor under CIS and you are working for a contractor then the contractor will deduct 20% from your payments and pass this over to HMRC.
These CIS deductions will count as advance payments towards your tax and National Insurance bill.
If you are a subcontractor and do not register for the scheme then your contractor is required to deduct 30% from your payments.
If you do not want deductions made from your payments from subcontractors then it is possible to apply for ‘gross payment status’. You can do this when you register for the Construction Industry Scheme.
This applies to subcontractors regardless of whether they are working as limited companies, partnerships or self-employed individuals.
Implications of non-compliance with CIS
Non-compliance with the Construction Industry Scheme can have serious consequences. It may lead to queries and penalties from HMRC. Penalties for late returns start at £100 initially and can ramp up if the return is not filed soon. The penalty for missing records can be more extreme and can amount to £3000 which is why it is vital your affairs are in order and correctly documented.
By keeping good records and following the legislation you can ensure that your monthly returns are filed in good time and are accurate which avoids penalties. Employing an accountant to help you with this can greatly reduce the burden contractors have to undertake and can ensure the rules are followed properly, as well as ensuring your other tax affairs are in order.
What is the VAT reverse charge for construction?
HMRC launched an initiative called the VAT reverse charge for construction. Having been delayed by Brexit this came into force in March 2021.
The charge was brought in as an anti-fraud measure to stop subcontractors charging VAT to contractors and then disappearing before the VAT is paid over to HMRC. This is commonly known as a missing trader fraud.
The initiative shifts the liability for accounting for output VAT from the supplier (subcontractor) to the customer (main contractor). This stops the supplier from disappearing and not paying the VAT over to HMRC.
Get in touch with Sherwin Currid today to discuss CIS
If you work in the construction industry and require help managing or registering for the construction industry scheme then please do get in touch to discuss your business with us. We manage all parts of CIS and can help you with registration and making your first payment, through to managing your CIS and business records.