The CIS is how self-employed tradespeople in the UK pay income tax and National Insurance contributions (NICs).
This differs from self-employed people working in other sectors, who receive gross payments before paying tax and NICs via self-assessment.
The CIS is designed for contractors in the construction sector who take on subcontractors for certain jobs but not as an employee.
The rules require contractors to deduct tax on any payments to you, at 20% if you are CIS-reigstered or 30% if you are not, before paying it to HMRC.
These deductions count as advance payments to your income tax and NICs liability in any given tax year.
Registering for the CIS
If you take on self-employed workers for construction work in the UK, you are seen as the contractor in HMRC’s eyes and must register for the CIS. You also need to determine the subcontractor’s employment status.
Conversely, if you are self-employed and are taken on for construction work, you choose whether or not to register under the CIS. Signing up to the scheme will result in you paying a lower tax rate.
Jobs which fall under the CIS include building, civil engineering (eg roads or bridges), groundworks, demolition, alterations, repairs, decorating, installing utilities (eg water, gas, power), and cleaning.
4 CIS changes for 2021/22
For many contractors and subcontractors operating under the CIS, you might have missed four measures enacted on 6 April 2021.
HMRC brought these in to crack down on CIS abuse, specifically, labour fraud such as untaxed cash-in-hand payments.
1. Set-off amendment power
HMRC can amend CIS deduction amounts claimed by subcontractors on their real-time information (RTI) employer payment summary (EPS) returns.
This corrects errors or omissions, removes claims, and prevents certain employers from making similar claims in the future.
Both contractors and CIS-registered subcontractors should keep detailed records to support any set-off claims.
2. Cost of materials
Subcontractors can only reclaim the costs of materials they directly incur in relation to completing any specific building project.
Contractors must find out how much was spent and that it represents the direct cost to that subcontractor for the contract.
These costs of materials will not be subject to a deduction under the CIS.
3. Deemed contractors
New rules are in place for operating the CIS as a deemed contractor.
Non-construction businesses need to apply the CIS when total spending on construction operations exceeds £3 million in the past 12 rolling months.
Previously, these firms only had to operate the CIS if average expenditure on construction operations was more than £1m in the last three tax years.
4. CIS-registration penalty
The penalties regime for supplying false information on payments under deduction within the CIS, or gross payment status has been expanded.
Anyone can receive a penalty if they:
- exercise influence or control over someone registering for the CIS
- encourage that person to make a false statement or supply false documents
- make a false statement or supply false documents.
Whether you are a contractor or subcontractor, we have a range of business accounting services for construction firms. Call 0141 221 2257 or email firstname.lastname@example.org to find out how we can help.