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A brief guide to the Construction Industry Scheme

If you are in the building industry or have a lot of construction work done on a regular basis, you may have to register for the Construction Industry Scheme (CIS).

HM Revenue and Customs (HMRC) set up this initiative to help it to collect more tax from those who work in the construction sector.

Who has to register for the scheme?

All contractors or subcontractors that work in the construction industry must register for CIS. The only exceptions are surveyors, architects, carpet fitters, building-material suppliers, and companies that provide non-construction services to building sites, for example, catering services.

In addition, any non-construction related firm that spends an average of more than £1m per year on building work across a three-year period must also register for the scheme. These firms have to register as contractors, although some jobs may be exempt from the initiative, including private households.

How CIS works

When subcontractors are hired, the contractor employing them has to check that they are registered with HMRC. The contractor also needs to confirm that the subcontractor will be working for them on a self-employed basis.

No one that a contractor employs as a direct employee needs to be part of the CIS initiative. This is because all employees are paid using the PAYE system, which ensures that any tax owed is handed over each month.

When a contractor pays its subcontractors, it will have to deduct 20% from the invoice. This percentage is passed onto HMRC to be held on account. When the subcontractor fills out his or her annual tax return, the cash passed to HMRC under CIS is then deducted from their tax bill. As such, it is vital that contractors inform the tax authorities about all of their construction-related payments on a monthly basis, to keep on the right side of the relevant legislation.

Getting the process right

It is very important that firms and subcontractors understand CIS and follow it properly, especially as failure to do so can result in high fines.

The rules and regulations surrounding the scheme can change, so it is important to keep up to date. As such, most contractors and subcontractors find it easier to employ an accountant to look after all of their construction-related payments. This is the best way to guarantee that you follow all of the processes properly, as well as to avoid being fined or prosecuted by the tax authorities.

Posted by Louise
March 24, 2015
Features

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