De’Blog – Construction Industry Scheme (CIS)

Now that we have all eased our way out of the Manic January period and things are starting to get back to some sort of normality I thought it would be good to refresh minds with the latest news within the world of accountancy. This month it happens to be a refresher on how the construction industry operates.

Yes, there still needs to be clarification about what classifies a contractor and a subcontractor.

So let’s refresh the minds;

Under the construction Industry Scheme (CIS) contractors deduct money form subcontractor payments and then pass it on to HMRC.

These advanced payments count towards the subcontractors tax and national insurance contributions over a period of time.

In order to deduct these payments, Subcontractors and contractors must BOTH register for the scheme!

However if subcontractors choose not to register the tax is deducted from them at a HIGHER RATE OF TAX being 30% rather than the STANDARD RATE of tax which is 20%.

So you must register as a CONTRACTOR if either:

· You pay subcontractors for construction work

· Your business doesn’t do construction work but spend an average of more than £1million a year on construction in any 3 year period.

OR

Register as a SUBCONTRACTOR if you do construction work for a contractor.

However if you fall under both categories you must register for them both!!!

CIS cover most construction work to buildings including site preparation, decorating and refurbishment.

There are exceptions to the rule:

· Architecture and surveying

· Scaffold Hire (with no labour)

· Carpet Fitting

· Delivering materials

· Work on construction sites that are clearly not construction.

Refer to the HMRC booklet CIS 340 for any further clarification and reference.

Keep reading next month for more exciting updates!