At VW Taxation, we understand that many of our clients in the construction industry have a lot of important things to worry about.
One area that often causes confusion is the Construction Industry Scheme or CIS. Whether you are changing the electrics in a house or building an extension, if you are using other people to help finish the work, this is going to affect you.
To help out, here’s our quick guide to what CIS is and what your responsibilities are.
What is the Construction Industry Scheme?
Many construction firms and individuals pay subcontractors to carry out work rather than actually have direct employees that they pay through PAYE. The Construction Industry Scheme means that contractors when they pay subcontractors, will also deduct their tax and submit it to HMRC.
All contractors have to register for the scheme. Subcontractors can register for it but are not obliged to. However, if they do not register for CIS, they may be liable for a higher rate of tax.
Who is Affected by CIS?
If you undertake any construction work in the UK, you are affected by the scheme. That includes if you are involved in site preparations, alterations, dismantling, demolition, construction, repairs, or decorating. If you are putting in heating, lighting, power sources or ventilation you will be affected. CIS also includes cleaning the inside of a building after construction work has been carried out. Therefore and ultimately, if you’re hired to do it by a construction firm, you’re classed as a sub-contractor.
- Construction businesses that are based outside the UK but which carry out building work there must also register for CIS.
- You must comply whether you are a CIS limited company, a partnership or a self-employed individual.
- If you are a contractor (or subcontractor) you should be registering for CIS.
Contractors vs Subcontractors
A contractor is simply a business or individual that employs a subcontractor to carry out work. For example, you may be a builder who requires a plasterer to finish off a job for a client.
The plasterer you use is the subcontractor and you are classed as the contractor whether the relationship is formal or not. When the work has been finished, you as the contractor will pay the plasterer but deduct the tax under CIS to give to HMRC.
These deductions will count as payments towards the subcontractor’s National Insurance and tax liability for the year.
Are There Exceptions?
There are a few exemptions where you don’t have to register for CIS:
- Architects and surveyors don’t have to register.
- Scaffolding hire if there is no labour involved and you are putting it up yourself.
- If you are a carpet fitter you don’t have to register.
- It doesn’t include people who deliver materials or manufacturers involved in making materials and plant machinery.
- It doesn’t apply to work carried out on a site and which is not construction related. For example, if you have a canteen on site, it’s not classed as subcontracted for the purposes of CIS.
How Can VW Taxation Help?
The fact that you have to submit monthly returns as a contractor can certainly make life complicated. There’s also the issue of fines if you don’t get things right.
For instance, if you give the wrong employment status for a sub-contractor it can end costing you a fine of £3,000. You even have to remember to tell HMRC that no return is due when you have a month where you didn’t use sub-contractors.
If you live in Portsmouth or the surrounding area, VW Taxation can help you manage your CIS obligations. That includes whether you are a contractor or sub-contractor or both. Many local businesses, particularly self-employed builders, have a pretty fluid relationship with others around them. One day you may be looking for a sub-contractor to help you out, the next it could be the other way around.
The areas we can help you with include submitting CIS tax returns, advising expenses and tax relief, and claiming back overpayments. If you have a fairly complicated contractor/sub-contractor relationship, it can be quite easy to overpay. We’ve helped a number of building companies and self-employed builders claim back tax that has been overpaid.
Unfortunately, it can also be easy to get on the wrong side of the CIS and we’ve helped many businesses minimise potential fines for issues like misreporting or late reporting.
There’s no doubt that CIS presents challenges for the construction industry. Especially if you are self-employed, it can be something of a minefield.
At VW Taxation, we have the team in place who can help you manage everything and ensure you stay on the right side of CIS. Contact us today for a no-obligation quote for your annual CIS tax return and find out how we can make life easier for you.