The Construction Industry Scheme (CIS) provides rules and procedures for construction contractors to follow on how to handle payments to subcontractors and certain other businesses. Contractors are responsible for registering with the scheme, deducting tax from payments to subcontractors, and passing it to HMRC. The scheme covers all construction work including jobs such as site preparation, alterations, dismantling, construction, repairs, decorating and demolition. It covers all types of businesses working in the construction industry, including companies, partnerships and self-employed individuals.
When hiring a subcontractor in the construction industry in the UK, specifically under the CIS, there are a number of set procedures to follow to ensure you are compliant with the scheme’s regulations.
1. Verify their CIS status
Before hiring a subcontractor, verify their CIS status with HM Revenue and Customs (HMRC). You can do this by checking their UTR (Unique Taxpayer Reference) and asking for their CIS registration details.
2. Gather necessary information
Collect important details from the subcontractor, including their UTR, legal business name, business address, and National Insurance number. Keep this information for your records.
3. Provide a subcontractor statement
When you make your first payment to the subcontractor, provide them with a CIS subcontractor statement. This statement outlines the deductions you will make from their payments for tax purposes.
4. Determine the tax deduction rate
Depending on the subcontractor’s CIS status, you will deduct tax from their payments at either the standard rate (20%) or a higher rate (30%) if they are not registered with HMRC.
5. Keep records
Maintain accurate records of all payments made to the subcontractor and the deductions you have withheld. You must keep these records for at least three years.
6. Submit monthly returns
As a contractor, you need to submit monthly CIS returns to HMRC, even if you did not make any payments to subcontractors during that month. These returns provide details about the payments you have made and the tax deductions.
7. Issue payment statements
Provide the subcontractor with a monthly statement that shows the payments you made, the amount deducted for tax, and any other relevant information. This statement is essential for the subcontractor’s own tax records.
8. Keep up with changes
Be aware of any changes in the subcontractor’s status, such as changes in their UTR or registration details. Update your records accordingly.
9. Maintain good communication
Foster open and clear communication with the subcontractor. Address any questions or concerns they may have about CIS deductions promptly.
10. Review compliance
Regularly review your CIS compliance to ensure you are adhering to all HMRC regulations. This includes staying up to date with any changes in CIS rules and rates.
11. Seek professional advice
If you are unsure about any aspect of CIS compliance, consider consulting with an accountant or tax professional who specialises in the construction industry. They can provide guidance and ensure you meet all legal requirements.
Compliance with CIS regulations is crucial to avoid penalties and legal issues. Make sure you are well informed about your responsibilities and maintain accurate records throughout your engagement with subcontractors in the construction industry.