If you work in the construction sector you need to register under the Construction Industry Scheme (CIS). You can find out more about CIS on the GOV.UK website at: www.gov.uk/what-is-the-construction-industry-scheme or visit our website at: www.ellacottmorris.co.uk/construction-industry-scheme-cis/
You will either need to register as a contractor or a subcontractor. Some people come under both categories! There are a few exceptions when it comes to registering for CIS, so make sure you check with us first!
The scheme was implemented by HMRC due to the number of independent subcontractors in the construction sector. Because the subcontractors are self-employed, they would not make income tax and national insurance contributions though the ‘Pay As You Earn’ (PAYE) scheme, which is used for employed staff. Therefore, HMRC launched the CIS to collect tax contributions from subcontractors – it essentially acts as a self-employed version of the PAYE scheme specifically for the construction industry.
In the same way that an employer would pay PAYE contributions to HMRC, contractors pay an amount to HMRC that is deducted from what the subcontractor receives. The rate varies from 20% if the subcontractor is ‘registered’ with the CIS and 30% if they are not. If you are a subcontractor, it is important to understand if your employment status is correct. Just because you work in the construction section doesn’t mean you have to be a self-employed subcontractor. Depending on the details of the working relationship with your contractor, you may be entitled to employment rights. Contractors have an obligation to decide if their workers are employed or self-employed.
Whether you’re a contractor or subcontractor – we can help!
As a sole trader, your total CIS payments for any tax year will be deducted in your annual tax return and the tax paid will be offset against any tax due. The good news is that this often results in a tax refund.
As a limited company, you are required to file a monthly Employer Payment Summary (EPS) via your payroll software to evidence the CIS you’ve had deducted from payments. You will then need to request in writing a refund from HMRC, which can be offset against your Corporation Tax Return (see our limited company information sheet for more details).
For those people who fall under the banner of contractor and subcontractor then both returns will need to be completed each month. The two figures will be offset against each other – the amount you’ve had deducted against the amount you’ve deducted. Depending on the outcome, you will either be due a refund that you’ll have to request from HMRC, or you’ll need to make a payment to HMRC. However, if you are a sole trader you will need to pay the deductions made from your subcontractors on a monthly basis, but can’t reclaim the CIS until the 5th April each year.
By Michelle Morris on 22/03/2022 06:00:00