Dealing with CIS Construction is not easy, you should get a professional help. As much as you might not want to hear it, working in the construction field includes paperwork as well as any other field. We’re sure that this might become a problem for you as dealing with paperwork and finances becomes stressful and overwhelming with time. Every day a new thing and a new rule to be followed carefully. And to make sure you don’t face any difficulties, later on, every step should be taken carefully. This relates to CIS Construction Industry Scheme as well. And before we start with tips to make this procedure seem easy to you, let us introduce CIS Construction first.
Construction Industry Scheme (CIS)
Construction Industry Scheme (CIS) is a scheme that relates to HMRC (HM Relations & Customs) and it is used for tax requirements between subcontractors and contractors. Under this scheme, contractors need to make deductions on subcontractors’ payments and pass all these deductions to HMRC. But why are these deductions made? Since CIS construction tax scheme refers to tax requirements, by now you should understand that deductions made relate to tax payments. All deductions count as advance payments towards the subcontractor’s tax and National Insurance. This makes it not only easier for subcontractors to get their taxes paid but also gives them rewards based on refunds that come from deductions that are made throughout the year. By the end of the year, subcontractors take back any amount that is greater than the tax payment done by deductions based on CIS scheme. And the best part of it all is that by being registered for CIS you as a subcontractor save a decent percentage made on your monthly deductions. While being registered under CIS you get deductions made for 20% of the full amount, while in other cases you get deductions of 30% made from your full payment. That’s by far the most important reason why as a subcontractor you should register under Construction Industry Scheme.
CIS Construction for contractors
As a contractor, you have tons of responsibilities that vary from maintaining good relationships with customers to prioritizing their needs with an organized and excellent project or schedule. But it doesn’t end there. You are responsible for hiring subcontractors to complete any aspect of the work you give to them efficiently. And by hiring them you also need to get the right amount of payment for each construction work done by them. This is also one of the reasons why you as a contractor should be registered in CIS Construction scheme. And in case your business has spent at least £3 million on construction work in the last 12 months, you should have been registered by now. This applies even if your business is not involved in making construction work but only payments related to the construction field. You should keep in mind that in case of being a subcontractor too meaning that you do work for another contractor, you should register under both categories. This means that in cases like this you register as a contractor yourself and as a subcontractor too.
Being registered as a subcontractor is an easy-to-follow procedure that has many benefits for you, ones we mentioned earlier on. But as a contractor, you should re-check most of the things and information related to the registration before taking any action. The best thing to do is to prepare everything some days before registration to avoid problems with the procedure. The first thing you need to do is verify which one of your suppliers is a subcontractor. You should identify which of your subcontractors need to use reverse charge VAT as these two things make it easier to know how to apply the right amount of deductions in CIS Construction scheme. It is also important to know which one of your subcontractors is registered so you avoid making mistakes on deductions from their payments. Another good thing that is always recommended is to keep records of everything you do. This includes keeping records of bank statements, invoices, cashbooks, receipts, purchases, and everything of this kind. In case this seems overwhelming to you, check out more information on our website as we can provide you with a professional team of experts who will do all this work for you in the best way possible. We are ready to help you figure out everything in CIS Construction Industry step by step so chose the best option available to you.
CIS Construction tax
Apart from deductions made there are certain rules and things you need to know about CIS in construction. There is another option to get paid apart from deductions made monthly on your full payment. This option is called gross payment and it is also used in Construction Industry Tax Scheme. Once you register and get the verification of your registration from HMRC, you also get informed on the way you want to get paid. Before choosing a gross payment method make sure to know if it applies to you or not. There is a certain criterion that needs to be met for gross payment to be applied to you. This criterion includes three tests that are made once you request gross payment. The first test needs to make sure whether your business carries out construction work within the UK. The second test known as the compliance test has to do with tax payments. It makes sure whether your business has submitted all appropriate tax returns and most importantly whether it has paid all taxes on time during the past. The third test, the turnover test lets HMRC review your business turnover. This simply means that HMRC reviews turnover made in construction work within the last 12 months. The turnover must be at least £30,000.00 as a sole trader or for each director of a company. If all the rules mentioned are verified by HMRC and you pass all three tests meaning the criteria are met, HMRC authorizes gross payment for the subcontractors.
By now we’re sure you got to learn the most important things related to CIS Construction Industry Scheme. For more information and help we provide you with a team of experts ready to exceed your expectations. At Blimey Solutions, we got solutions for everything you need to waste no more time. Let professionals lead you to success.