What is CIS
The Construction Industry Scheme (CIS) is a tax deduction scheme that applies to payments made to subcontractors in the construction industry. Understanding what is CIS is crucial for contractors and subcontractors to comply with HMRC rules and avoid penalties.
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How the Construction Industry Scheme Works
CIS requires contractors to deduct tax from payments to subcontractors and pay it directly to HMRC. These deductions are treated as advance payments towards the subcontractor's tax and National Insurance liabilities.
Subcontractors must be registered with HMRC under CIS, and contractors must verify their status before making payments. The deduction rates vary based on the subcontractor's registration status, typically 20% for registered, 30% for unregistered, or 0% for gross payment status.
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Key CIS Rules and Responsibilities
Both contractors and subcontractors have specific obligations under CIS. Here are the main rules you need to know:
Contractors must register with HMRC for CIS before taking on subcontractors.
Subcontractors can register for CIS to receive payments with reduced or no deductions.
Deduction rates: 20% for registered subcontractors, 30% for unregistered, and 0% for those with gross payment status.
Contractors must verify each subcontractor's status with HMRC before the first payment.
Monthly CIS returns must be filed by contractors, detailing all payments made.
Subcontractors must provide their Unique Taxpayer Reference (UTR) and National Insurance number.
CIS deductions cover tax and National Insurance, but not VAT.
Penalties apply for late registration, late returns, or incorrect deductions.
Certain construction operations are covered, including building, decorating, and demolition.
Expenses and materials can be excluded from CIS deductions in some cases.
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Common CIS Mistakes and When to Seek Help
A common error is failing to verify subcontractors, leading to incorrect deduction rates and potential penalties. Also, missing monthly return deadlines can result in fines from HMRC, even for small contractors.
If you're unsure about your CIS obligations, have complex subcontractor arrangements, or need help with registration and returns, professional advice from Business At can ensure compliance and optimize your tax position.
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