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What is the Construction Industry Scheme (CIS)?
The Construction Industry Scheme (CIS) is a government initiative aimed at regulating payments between contractors and subcontractors in the UK construction industry. Under CIS, contractors are required to deduct tax from payments to subcontractors and send it to HMRC. These deductions contribute towards the subcontractor’s tax and National Insurance obligations.
At LT Accounting, we specialise in helping contractors and subcontractors navigate CIS compliance with ease. Whether you’re new to the scheme or need ongoing support, we’re here to help.
Key Features of CIS
Who Needs to Register for CIS?
Contractors are businesses or individuals who pay subcontractors to carry out construction work. This can include:
- Construction companies hiring subcontractors for specific projects.
- Property developers engaging subcontractors for building, renovation, or repair work.
- Businesses outside the construction industry that spend a significant portion of their operations (e.g., over £3 million annually) on construction activities.
Contractors have specific responsibilities under CIS, including:
- Registration: All contractors must register with HMRC as part of the CIS scheme.
- Verification: Contractors are required to verify their subcontractors with HMRC to determine the correct deduction rates.
- Deduction and Reporting: Contractors must deduct the appropriate tax (20% or 30%) and file monthly CIS returns to HMRC detailing payments and deductions.
Failure to fulfil these duties can lead to financial penalties and disruptions in ongoing projects. Ensuring compliance with CIS is crucial for contractors to maintain smooth operations and protect their reputation within the industry.
Subcontractors are businesses or individuals that work under a contractor to provide services within the construction industry. This includes:
- Sole traders or limited companies performing tasks such as site preparation, groundwork, bricklaying, roofing, plumbing, or electrical work.
- Specialists hired for specific trades or services, including carpentry, painting, or plastering.
Subcontractors also have obligations under CIS, including:
- Registration with HMRC: Registering as a CIS subcontractor ensures that tax deductions are made at 20% instead of the higher 30% rate.
- Providing Accurate Information: Subcontractors must provide their Unique Taxpayer Reference (UTR) and other necessary details to contractors to facilitate proper verification.
- Reclaiming Deductions: As subcontractors, tax deductions are made at source by contractors. These deductions count towards their annual tax liabilities, and overpaid amounts can be reclaimed through self-assessment or corporation tax returns.
By understanding and fulfilling their responsibilities under CIS, subcontractors can avoid unnecessary financial strain and focus on building their business. Our team at LT Accounting offers dedicated support to help subcontractors stay compliant and maximise their earnings.
