The Construction Industry Scheme (CIS) aims to prevent tax avoidance in the construction industry by implementing certain rules. Contractors are required to deduct money from payments made to subcontractors and pass it on to HMRC. Additionally, contractors must submit a CIS return every month, providing information about the payments made, the amount deducted for tax, and the recipients.

Here are some key points regarding CIS:

  1. Registering for CIS: Contractors in the construction industry must register for CIS if they engage subcontractors for their work. Subcontractors, whether self-employed individuals or companies, are not obligated to register for CIS, but higher deductions are applied to their payments if they choose not to register.
  2. Contractor Responsibilities: Contractors have several responsibilities under CIS, including verifying the status of subcontractors with HMRC. They must also complete a monthly CIS return and make CIS payments to HMRC.
  3. Verifying Subcontractors: Before commencing work, contractors need to verify the status of subcontractors with HMRC. This involves confirming their tax status and CIS registration. Verifying subcontractors is essential for determining the correct deduction rate from their payments.
  4. Verification Process: Contractors can verify subcontractors using HMRC’s free online CIS service. Commercial CIS software is necessary if verifying more than 50 subcontractors. Certain information, such as UTR numbers, national insurance numbers, and company details, is required for verification.
  5. Deductions from Subcontractor Payments: The deduction rate for CIS depends on the subcontractor’s registration status. Contractors should deduct 30% if the subcontractor is unregistered or cannot be verified, 20% for registered subcontractors, and 0% for those with gross payment status (no deductions).
  6. Monthly CIS Return: Contractors must submit a CIS return each month, providing details of payments made to subcontractors and the deductions. Accurate financial records should be maintained, documenting payments and deductions.
  7. Inactivity and Exceptions: If no subcontractors are used in a particular month, a CIS return is not required, but HMRC should be informed. Contractors expecting no subcontractor payments for a few months can request temporary account inactivity (up to 6 months).
  8. CIS Return Submission: CIS returns can be submitted directly through the HMRC website or using CIS software. The return should include information on subcontractors’ payments, deductions made, and the same details used for verification.
  9. CIS Return Deadlines: CIS returns must be submitted by the 19th of each month, covering the previous tax month. The tax month begins on the 6th of one month and ends on the 5th of the following month.
  10. Providing CIS Statements: Contractors are required to provide subcontractors with CIS statements if deductions are made from their payments. It is good practice to issue statements even if no deductions were taken, as it promotes transparency and helps subcontractors with their own tax returns.
  11. Making CIS Payments: Contractors are responsible for making CIS payments to HMRC based on the deductions made from subcontractors’ payments. HMRC will set up a payment scheme during CIS registration, and payments should be made by the 22nd of each month (or the 19th for postal payments).

It is advisable to seek professional advice or consult HMRC’s guidelines for comprehensive and up-to-date information on the Construction Industry Scheme.

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