The Construction Industry Scheme (CIS) is a set of rules you must follow as a contractor or subcontractor to ensure you’re paying the correct amount of tax on your income.
It can hurt when you have to pay, but avoiding it will cause you many a headache further down the line.
If you’re a contractor who pays subcontractors for construction work and the subcontractors are not VAT-registered, then you must register for CIS.
But how do you do this?
When must I register for CIS?
You must register as a contractor if you either:
- pay subcontractors for construction work.
- have a business that does not do construction work, but you’ve spent more than £3 million on construction in the last 12 months since you made your first payment.
As a subcontractor, you will have to register if you do construction work for a contractor unless you want to pay an extra 10% tax.
It’s possible to fall under both of these categories, where you’ll have to register as both a contractor and a subcontractor.
Complete a CIS301 Form
To register for CIS, you’ll need to complete the HMRC form CIS301, which is available here on the HMRC website.
Make sure you complete this form, send it back to HMRC alongside the necessary documents – proof of identity, business status etc – and then wait for it to be processed.
Once your application is approved, you’ll be issued a CIS registration number, which you’ll need to use when submitting your CIS returns and making payments to your subcontractors.
It’s important to note, as a contractor, you’re responsible for deducting money from your subcontractors’ payments and passing it on to HMRC.
This is known as “deduction at source” and is a way for HMRC to collect tax from subcontractors who may not be registered for self-assessment.
The amount you need to deduct will depend on the subcontractor’s CIS status, which can be found on the CIS online service or by asking the subcontractor for their CIS card.
Once registered for CIS, you’ll need to submit monthly or quarterly returns to HMRC.
These returns will include details of the payments you have made to subcontractors, the deductions you have made and the amount of tax you have passed on to HMRC.
Make sure you submit your returns on time, as late submissions can result in fines and penalties.
In addition to registering for CIS and submitting returns, there are many other responsibilities contractors have under the scheme.
For example, you must ensure your subcontractors are registered for CIS and that you have their correct details on file.
Make sure you keep records of your CIS transactions and ensure your subcontractors know their rights and responsibilities under CIS.
CIS can seem overwhelming, but it’s essential to follow the rules to avoid fines and penalties.
The best way to ensure compliance is to keep accurate records and stay on top of your monthly or quarterly returns.
It’s worth checking in with an accountant or other financial professional to make sure you’re staying on top of your financial obligations.
Get in touch with us today, and we’ll help you register for CIS, understand your status, or just help you get control of your finances.