The Construction Industry Scheme (CIS) is a system established by HMRC to regulate how contractors in the construction sector handle payments to subcontractors. Under CIS, contractors are required to deduct tax at source from subcontractors’ payments and submit it to HMRC. This system helps ensure subcontractors pay their fair share of tax.

If you’re starting out as a contractor in the UK, understanding how to register for CIS is crucial for compliance. In this guide, we will walk you through the process of registering for CIS as a contractor, covering the steps involved, important deadlines, and common pitfalls to avoid.

What is the Construction Industry Scheme (CIS)?

The CIS is designed to combat tax evasion in the construction industry, ensuring contractors account for tax on payments made to subcontractors. Under this scheme, contractors deduct money from the payments made to subcontractors and forward it to HMRC. These deductions are then treated as advance payments toward the subcontractor’s tax and National Insurance obligations.

If you’re a contractor or planning to become one, registering for CIS is a legal requirement. Failure to comply could result in penalties, interest charges, and potential legal consequences.

Who Needs to Register for CIS?

You are required to register as a contractor under CIS if:

  • You pay subcontractors for construction work.
  • You are a business that spends more than £3 million per year on construction-related activities, even if construction is not your primary business (this includes large property developers and certain public authorities).

Subcontractors can also voluntarily register for CIS, although it’s not mandatory for them. Registering ensures they are taxed at a lower rate than unregistered subcontractors.

Steps to Register for CIS as a Contractor

1. Ensure You’re Registered as an Employer

Before registering for CIS, you need to ensure you’re registered as an employer with HMRC, particularly if you plan to employ workers or subcontractors. This is because you’ll need a PAYE scheme set up to handle tax and National Insurance for employees, as well as deductions under CIS.

2. Register for CIS with HMRC

Once you’re registered as an employer, you can proceed to register for CIS. Here are the key steps involved:

  • Online Registration: The easiest way to register for CIS is online via the Government Gateway. If you don’t have a Government Gateway account, you will need to create one before starting the registration process.
  • Log in to HMRC’s Online Services: After setting up your Government Gateway account, log in and select the option to “register for CIS.”
  • Provide Your Information: You will need to provide:
    • Your business details, including your trading name and address.
    • Your unique taxpayer reference (UTR), which you should have received when you registered for Self Assessment or Corporation Tax.
    • Your National Insurance number or Corporation Tax details (if applicable).
  • Subcontractor Verification: You may be asked to verify whether you are working as a subcontractor in addition to being a contractor. If so, you’ll need to provide additional details about your work as a subcontractor.

3. Await Confirmation from HMRC

After submitting your registration, HMRC will process your application. Once approved, you will receive a CIS registration confirmation. This usually takes around 10 days. Keep this documentation safe, as you will need to reference it for compliance and to verify your registration status to subcontractors.

What Happens After You Register?

Once you’re registered, you’ll need to comply with ongoing responsibilities as a contractor under CIS. These include:

1. Verifying Subcontractors

Before making any payments to subcontractors, you must verify their CIS status with HMRC. This can be done online through the CIS section of HMRC’s online services.

HMRC will inform you of the correct deduction rate for each subcontractor:

  • Standard rate (20%) for registered subcontractors.
  • Higher rate (30%) for unregistered subcontractors.

2. Deducting CIS Tax

For each payment you make to subcontractors, you must deduct the appropriate amount for tax and send this to HMRC. The amount deducted depends on the subcontractor’s status (verified or unverified). Deductions cover the subcontractor’s tax and National Insurance contributions.

3. Filing Monthly CIS Returns

Contractors must submit a monthly CIS return to HMRC. This return must include:

Monthly returns are due by the 19th of the following month. Failure to submit these returns on time can result in penalties starting at £100 for late submissions.

4. Provide Payment and Deduction Statements to Subcontractors

Each month, you must also provide subcontractors with a statement showing:

  • The amount you paid them.
  • How much tax was deducted under CIS.

This allows subcontractors to keep track of their tax contributions and claim deductions against their own tax bill.

Key Deadlines and Penalties for Contractors under CIS

Being a contractor under CIS involves ongoing compliance, including:

  • Monthly Returns: Due on the 19th of every month.
  • Payment to HMRC: Payments of deducted tax are due by the 22nd of the month (if paying electronically).

Failure to comply with CIS obligations can result in:

  • Late Filing Penalties: £100 for the first late submission, increasing for prolonged delays.
  • Incorrect Returns: Penalties for incorrect or incomplete returns.
  • Interest on Late Payments: If you fail to pay the deductions to HMRC on time, interest charges may apply.

Common Mistakes to Avoid When Registering for CIS

1. Failing to Register on Time

Contractors must register for CIS as soon as they begin paying subcontractors. Delaying this process can result in penalties and interest charges on late payments to HMRC.

2. Incorrectly Verifying Subcontractors

It’s important to verify the CIS status of all subcontractors before making payments. Failing to verify subcontractors could result in incorrect deductions and potential penalties.

3. Missing Monthly Returns

Ensure you submit your monthly CIS returns on time. Late submissions can quickly lead to escalating penalties, so it’s crucial to stay on top of deadlines.

4. Not Keeping Adequate Records

Contractors must keep detailed records of payments, deductions, and subcontractor information for compliance purposes. Poor record-keeping can complicate your monthly returns and lead to issues during an HMRC audit.

How LT Accounting Can Help Contractors

Navigating CIS can be challenging for contractors, especially with the detailed compliance and reporting requirements. At LT Accounting, we specialise in helping contractors manage their CIS obligations, from registering with HMRC to filing accurate monthly returns. Our services include:

  • CIS Registration: We can guide you through the process of registering as a contractor with HMRC, ensuring you avoid common pitfalls and complete the process correctly.
  • Monthly CIS Returns: We handle the preparation and submission of your monthly CIS returns, ensuring you meet HMRC deadlines and avoid penalties.
  • Subcontractor Verification: We verify your subcontractors’ CIS status and help you ensure the correct deductions are made.
  • Ongoing Support: From bookkeeping to VAT returns, our comprehensive services ensure your business stays compliant with all financial and tax regulations.

Conclusion

Registering for CIS as a contractor is a vital first step in ensuring compliance with UK tax regulations in the construction industry. By following the registration steps and maintaining ongoing compliance, you can avoid penalties and keep your business running smoothly. However, managing CIS can be complex, and many contractors benefit from professional assistance to ensure everything is handled correctly.

If you need help registering for CIS or managing your ongoing contractor obligations, contact LT Accounting today for expert guidance and support.