The HMRC Construction Industry Scheme (CIS) determines how:
- Subcontractors in the construction industry should be paid
- Construction workers should invoice and account for value-added tax (VAT)
Contractors either deduct then transfer:
- 20% of a registered subcontractor’s payment to HMRC
- 30% of an unregistered subcontractor’s payment to HMRC
How does the Construction Industry Scheme work?
If you:
- Are a subcontractor, you must first register with HMRC
- Plan to use the skills of subcontractors instead of employees, you must register with CIS
- Use a CIS registered subcontractor, you are responsible for their tax
The deduction from the subcontractor’s fee should be stated on the invoice. They are normally held in your accounts before being posted to a holding account with the subcontractor’s details. Deductions are paid to HMRC the next month and counted towards the pay for the subcontractor. They also contribute to their income tax and National Insurance.
Complying with the Construction Industry Scheme
The CIS was introduced to decrease tax evasion in the construction industry. You must comply with the responsibilities involved in being a company registered to use the services of a subcontractor. This includes recording transactions and submitting monthly returns to HMRC. It’s also essential to inform people within your company who deals with business transactions daily so they are accurately recorded.
Making payments
If you’re not going to use the services of any subcontractors, request for your status to be changed to ‘inactive’. This means you won’t receive returns for that period.
You can still register for CIS if you plan to hire subcontractors, even if you already have employees or use PAYE. HMRC helps with this by setting up accounts that work for both CIS and PAYE.
Invoices
Invoices must include the CIS deduction to show how much will be transferred to HMRC. This is usually included in the cost breakdown. From March 2021, the domestic reverse charge will apply to most transactions. Workers must apply this charge to their invoices – this means that VAT will be accounted for by the buyer instead of the supplier.
Download the i24 app now to create and send CIS-related invoices in an instant.