Ask the experts: Should I be taking CIS off subcontractors?

May 16, 2024 | Construction

Are yee a contractor in the construction industry? Then you should know all about the Construction Industry Scheme (CIS). But you might not know whether you should be deducting CIS from payments made to subcontractors.

Let’s take a look into the details of the CIS and see what we can learn.

The CIS and the importance of compliance

Let’s quickly go over what the CIS involves. The CIS is a tax deduction scheme for the UK construction industry, designed to prevent tax avoidance.

Basically, contractors have to deduct money from their payments to subcontractors and pass it on to HMRC. This money acts as the subcontractor’s tax and National Insurance contributions.

Keeping up with CIS regulations is important for both contractors and subcontractors. Failing to do so can result in severe penalties, so it’s important to understand when you need to deduct payments.

When do you deduct CIS?

Contractors must make deductions from payments if:

  • The subcontractor is registered for CIS.
  • The subcontractor’s work falls within the scope of the CIS.

For a subcontractor to be eligible for the CIS, they must:

  • Be in the construction industry.
  • Operate as a sole trader, partnership or limited company.
  • Carrying out construction work in the UK.

Subcontractors who then contract out the job to someone else are, under the CIS, seen as a contractor and must make deductions from payments.

How to deduct CIS payments

Deducting CIS payments involves a couple of steps. First, you need to check that your subcontractor is actually verified as a subcontractor with HMRC. How? Simple, this can be done online.

If your subcontractor is verified with HMRC, then you must deduct a CIS payment at the correct rate (20% for businesses registered on the CIS and 30% for businesses that aren’t).

Once you have made the payment, you should keep a record of it. We know it’s a pain, but contractors have to maintain accurate records of CIS deductions, payments to subcontractors, and verification details for at least three years. It’s easy to ignore this step, but failing to do so can lead to significant administrative headaches and potential penalties during audits or inspections.

Each step needs to be done reet – otherwise, you could be in breach of your obligations as a contractor under the CIS.

CIS penalties

If any of your CIS returns are one day late, HMRC will charge you an initial fixed fee of £100. If you still haven’t sent that return:

  • 2 months after the date it was due, you’ll be charged a second penalty of £200.
  • 6 months after the date it was due, you’ll be charged a further penalty of £300 or 5% of any liability that you should have shown in the return.
  • 12 months after the date it was due, you’ll be charged a second penalty, the amount of which will depend on why your return was late.

For the third penalty, the amount HMRC charges will be either £300 or 5% of any liability to make penalties. If you withheld any information, you will be charged a higher penalty of a) up to 100% of any liability to make payments, and b) a minimum penalty of £1,500 or £3,000.

How we can help

As an accounting firm that specialises in the construction industry, we understand that CIS regulations are important, but also what a headache they can be. The good news is that our team of experts can help you tackle CIS head-on like Vinny Jones in his prime.

From confirming a subcontractor’s status to making sure that not a penny less is deducted, we’re here to help you every step of the way. With our expertise, you can rest easy knowing everything is being taken care of. It’s a canny move.

Talk to us about the CIS.

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