Construction Industry Scheme for Hiring contractors
If you are a contractor and wants to hire a sub-contractor, you may have to register for construction industry scheme in order to contribute towards taxes.
What is the Construction Industry Scheme(CIS)?
Construction industry scheme is a scheme made for the sub-contractors so that they are unable to avoid paying taxes to HMRC.
In this scheme, Contractors deduct the income tax directly from the payments of sub-contractors and submits the same to HMRC. This income tax is deducted from sub-contractor’s gross earnings and act as advance payments on the sub contractor’s tax and national insurance.
Do I have to register for Construction Industry Scheme?
If you are a contractor, you have to mandatorily register for the construction industry scheme (CIS). If you are a mainstream contractor and your main business is doing construction and you give payments to sub-contractors for their construction work, you must register for CIS. It is applicable on builders, property developers, labour agencies and gang masters/leaders.
You will be considered as a contractor and you need to register for CIS in case you are not doing construction business but you spend an average of over £1 million per annum in any 3 years period. It may also applicable in case you are a housing association or an arm’s length management organization.
The following works are considered as construction under construction industry scheme –
- Building work
- Demolition & dismantling
- Alterations, repair work and decorating
- Site preparation such as laying foundations.
- System installation (including heating, power, lighting, water & ventilation)
- Cleaning work after finishing all the work.
Am I exempt from registering for Construction Industry Scheme?
It is not mandatory for subcontractors to get registered for CIS but the deductions from the payments will be made at a higher rate i.e.30% if they will not register for the same.
The following cases are exempted under CIS scheme –
- The CIS will not apply to your work in case you are a contractor and paid by a charity or trust.
- The CIS will not apply to your work in case you are paid by the head teacher/ governing body on behalf of a local education authority.
- You can also call the CIS helpline for exemption if you are working on sub-contractor’s own property and your work cost is less than £1000 (excluding materials)
- You will also be exempted in case you are paying for the work related to your own business property (not for sale or rent)
Specific work not covered by Construction Industry Scheme
The following jobs mentioned below are considered exempt under the construction industry scheme –
- Delivering materials
- Carpet fitting
- Scaffolding hire (Without labour)
Work such as site facilities or working in a canteen are also not covered under CIS as this is considered as a work going on construction sites and not considered actually a construction.
How much will I pay?
In case your sub-contractor is registered under construction industry scheme, you will deduct 20%as income tax from his gross earnings but if the person has not given his UTR number or the person is not registered under CIS, you must deduct 30% tax from his gross earnings.
It is very important that you calculate the sub-contractor gross pay accurately so that it should be submitted correctly to HMRC. There is no need to include VAT, material & equipment charges.
Is my UTR Number on my Construction Industry Scheme Card?
Yes, you will find your UTR number on your construction industry scheme or certificate. UTR consists of 10 digits.
How to register for Construction Industry Scheme?
You can easily register for construction industry scheme online by registering as a new employer. However, this process can take up to 2 weeks for confirmation. Therefore, you should register at least a fortnight before you hire a subcontractor for a work.
You can easily sign up online as a sole trader, limited company or a partnership firm but make sure that while registering you should use the same name and business address to pay sub-contractors
How does the Construction Industry Scheme Work?
After registering yourself, kindly follow the following steps mentioned below to find out how construction industry scheme works –
- In the first step, you have to verify your sub-contractors with HMRC that whether they are registered under CIS scheme or not. This can be done free online easily. In addition to this, you need to add basic information about your business as well as information provided by the sub-contractors.
- In the second step, you have to pay your sub-contractor after making the relevant deductions from gross pay. In case sub-contractor is registered, income tax deduction is 20% unless the tax will be charged at 30%.
- After your registration, HMRC set up a payment scheme for you and you have to pay deductions by using the relevant CIS scheme.
- In the last & the final step, you need to file your CIS returns monthly.
Monthly CIS Returns Filing
You have to file CIS returns monthly which are due on 19th of every month. You can file CIS returns by using our online tool or by using our accounting software that is Nomisma.
With the help of our accounting software Nomisma, you can easily calculate the taxes of contractors & sub-contractors. Nomisma also helps in producing reports which includes CIS deductions, materials and much more.
In order to ignore the material, you can also set up exclusions on certain sales types and also include the VAT tax scheme on flat rate in your CIS scheme. Make sure that you file your CIS returns accurately and on time unless you have to face penalties up to £3000 for giving wrong employment status to a sub-contractor.
If you are facing any problem, You can call our accounting experts at +44(0)20-3021 2326 or e-mail us at firstname.lastname@example.org. or If you are looking for Small Business Bookkeeping Software then Try Nomisma with 14 days free trial.