Over the past few months I have had a number of requests to assist businesses with the Construction Industry Scheme (CIS), what it is and how it affects them.
The first thing to mention is that CIS is not a tax itself, but rather a method of collecting tax from businesses (the self-employed, partnerships and companies) involved in construction.
Construction is a very broad term and refers to any, site preparation, alterations, dismantling, construction, repairs, decorating, and demolition.
Electricians, plumbers, decorators, cleaners and others are often caught by the scheme, not just mainstream builders. Professional fees, such as those of architects and solicitors, are usually excluded, as is equipment hire and materials.
As a contractor in the construction industry engaging the services of subcontractors, you will have a responsibility to verify all subcontractors and deduct a percentage (0%, 20% or 30%) from each payment you make to them before passing this on to HMRC. You will also need to prepare a monthly return for HMRC as well as a statement of deduction for each subcontractor.
As a registered subcontractor you will need to ensure that you split your invoice into labour and material components to minimise unnecessary deduction. You must also retain your CIS statements and if you are self-employed, use these to support your claim for tax already paid when completing your tax return.
If you are trading via a company, you must offset the deductions suffered against your employers PAYE bill including any CIS payments due to HMRC as deducted from any of your sub-subcontractors. It is important that this is correctly reported to HMRC through the company payroll submissions to avoid penalties. Any deductions suffered by the company are not automatically offset against corporation tax. Getting a refund from HMRC of deductions not offset against other CIS/PAYE liabilities can take up to five months!
Finally, if you qualify (usually meaning having income over a certain threshold and having paid all taxes on time in the past) you can apply to HMRC to have payment made without deduction. However, HMRC will reinstate deductions if you miss any deadlines!
This article originally appeared in the December/January edition of Wiltshire Business.