CIS scheme is a specific scheme set up by HMRC (HM Relations & Customs) used for tax requirements between contractors and subcontractors. It makes it easier for contractors to deal with the responsibilities they have towards deductions they need to make for their subcontractors. Saying so, it is also beneficial to subcontractors to get part in this scheme as they get a decrease in the deductions that contractors make on subcontractors’ payments monthly. CIS scheme is helpful for both parties as it allows them to meet their tax requirements without worrying much.
To take part in this scheme, you need to register first. Even though it applies only to people in construction industry, you should make sure whether it is for you or not. You have to register under CIS scheme as a subcontractor in case you do work for a contractor. If you are the one who pays subcontractors for their work or if you or your company has spent more than £3 million on construction in the last 12 months, then you must register on CIS Scheme. There are different cases when you don’t know whether to register as a subcontractor or a contractor because you tend to fit into both categories. In these specific cases, you pay your subcontractors to do the work for you but you’re also paid to do someone’s work, you have to register as both contractor and subcontractor. You should also keep in mind that even if your business is outside the UK but you have done construction work as a subcontractor or a contractor inside the UK, you still need to register for construction scheme. The only exceptions made are cases where you do certain jobs that don’t require you to register with CIS scheme. These include architecture and surveying, carpet fitting, delivering materials, or being in the construction sites having other facilities or a canteen.
Process of registration in CIS Scheme
The process of registration is completely easy for anyone. As a subcontractor, you need to follow an easy procedure online on the government’s website. As a contractor, you need to check many things beforehand and then start with the procedure of registration. It is advisable to check the documents and records you have some days before the day of the registration so you avoid misunderstandings and problems later on. One of the best things to do is to keep records of everything you do. This means keeping records of invoices, bank statements, and everything else. When you do the complete registration form it is better to include the full legal name of your business, VAT number if you’re registered and National Insurance number too. If you’re not careful, you can face penalties for false registration.
construction tax scheme
Once you register for CIS scheme you should also be aware of construction tax scheme. This simply means making the right amount of deductions from your subcontractor’s payment. You should check if your subcontractors are CIS registered and in case they’re not, you have to make a deduction of 30%. If they’re registered under CIS scheme, you have to make a 20% deduction monthly and if they’re registered for gross payment, you don’t need to make deductions at all. It might seem simple to you but you have to be extremely cautious about the right amount as you face a fine of up to £3,000 in case you make a mistake on deductions. All the deductions you make for your subcontractors are sent as a monthly payment to the HMRC and National Insurance. For any change or problem with paying too much or too little, you get notified as soon as possible from HMRC. Payments that are more than needed are returned to subcontractors as a refund by the end of the year. This avoids misunderstanding and makes it easier for anyone to get paid and meet their own tax requirements.
For further information on how to register under CIS scheme and on construction scheme please contact us today.