Construction Industry Scheme (CIS)

Construction Industry Scheme (CIS) – The Reason, The Purpose, The Why

This article outlines the CIS Scheme by discussing:

• What the construction industry scheme (CIS) scheme is.
• How does the CIS scheme work.
• What the purpose of the scheme is.
• How often do you need to submit.
• What is the penalty for missing submission / payment.

What the CIS scheme is:

Under the scheme, contractors deduct money from subcontractor’s payments and pass this onto HMRC directly. Contractors must register for the scheme. Subcontractors do not need to register, however if they do not then payments will be deducted at a higher rate.

As a contractor, you must submit monthly returns. These are the CIS300 returns which outline the deductions made on subcontractor payments. The same rules on CIS apply if the business is based outside of the UK but conduct construction work as a contractor or subcontractor in the UK.

The purpose of the CIS scheme:

The purpose of the scheme is to ensure the correct amount of tax is being paid directly to HMRC within the month the work is being completed. This makes understanding the amount of tax an individual or company needs to pay easier as payments have already been made. This in turn will reduce the amount of tax paid at the end of the year to HMRC if the business has not had any “suffered” CIS payments more than deducting from subcontractor payments.

When does a contractor need to register:

A contractor is an individual or company who provides skills or services to a company or individual for a fixed period. Contractors must register for CIS if either:

• The contractor pays subcontractors for construction work.
• The contractor’s business does not do construction work but has spent more than £3 million on construction in the last 12 months since they made their first payment.

Who is classed as a subcontractor:

A subcontractor is an individual a contractor uses to complete work needed for the end client. A subcontractor should register for the CIS scheme if the work falls within the CIS scheme.

Subcontractor payments must be deducted in line with how they are verified:

• 20% if verified at net.
• 0% if verified at gross.
• 30% if not verified.

It is important to note here that the CIS deduction is only applied to the labour element. If the invoice from the subcontractor shows any element of supply outside of labour, this would not be included in the CIS deduction calculation. For example, this maybe fuel, materials, mileage, etc. If you have any questions or need further information on CIS speak to JSR Management, we have over 30 years’ experience of the scheme and work with a variety of main contractors and sub-contractors.

Work covered by CIS:

The CIS scheme covers work such as:

• A permanent or temporary building / structure.
• Civil engineering work.
• Preparing the site.
• Demolition and dismantling.
• Building work.
• Alternations, repairs and decorating.
• Installing systems for heating, lighting, power, water and ventilation.
• Cleaning the inside of buildings after construction work.

There are several exceptions. These include:

• Architecture and surveying.
• Scaffolding hire (with no labour).
• Carpet fitting.
• Making materials used in construction.
• Delivering materials.
• Work on construction sites that is clearly not construction. For example, running a canteen.

How often does a submission need to happen:

For contracts using the services of subcontractors, a CIS300 return must be completed by the 19^th of each month. This is for the period before running from the 5^th of the previous month to the 6^th of the current month. In addition, an EPS should be submitted monthly, highlighting any CIS suffered.

For subcontractors who do not use any further subcontractors, an EPS for limited companies should be completed monthly, highlighting any CIS suffered. For individuals who have suffered CIS as a sole trader, the amounts must be highlighted on the self-assessment completed yearly.

Penalties for late submission or payment:

If a CIS300 return is required, each month and this is late; HMRC will initially issue a fixed penalty of £100. If HMRC have not received the return:

• 2 months after the date due, a second fixed penalty of £200 will be issued.
• 6 months after the date due, a further penalty of £300 or 5% of any liability that should have been shown in the return.
• 12 months after the date, HMRC will issue a second further penalty. The amount of this is dependant on the reason why the return was late.
• Additionally, interest will be charged for any late payments.

The business or individual is able to appeal these penalties based on certain grounds, however the solution is to talk to JSR Management who will ensure your returns are filed on time and are correct.

By Mark Lawson