What is CIS?

What is CIS, or the Construction Industry Scheme, is a tax deduction scheme run by HMRC for the UK construction industry. Understanding CIS is essential if you're a contractor or subcontractor, as it affects your payments and tax obligations directly.

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How the Construction Industry Scheme Works

CIS requires contractors to deduct money from subcontractors' payments and send it to HMRC as advance payments towards tax and National Insurance. These deductions help ensure subcontractors meet their tax liabilities throughout the year.

The scheme applies to construction operations like building, repairs, and demolition. If you're a subcontractor, you must register with HMRC and provide your Unique Taxpayer Reference (UTR) to contractors for verification before payments.

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Key CIS Rules and Requirements

HMRC has specific CIS rules that contractors and subcontractors must follow to stay compliant. Here are the essential points you need to understand:

Contractors must verify subcontractors with HMRC using their UTR before making any payments.
Deduction rates are 20% for registered subcontractors, 30% for unverified ones, and 0% for those with gross payment status.
Subcontractors can apply for gross payment status if they meet turnover, compliance, and business test criteria over 12 months.
CIS deductions must be reported to HMRC monthly via the CIS300 return, even if no payments were made.
Subcontractors need to include CIS deductions on their Self Assessment tax return to calculate final tax owed.
Penalties apply for late filing of CIS returns or incorrect deductions, so accuracy and timeliness are crucial.
The scheme covers payments for construction work, including materials if supplied as part of the contract.
Certain expenses like travel or tools are not subject to CIS deductions and must be claimed separately.
Contractors must provide subcontractors with a payment and deduction statement each time they pay, detailing amounts and deductions.
If you act as both a contractor and subcontractor, you must manage CIS for both roles, keeping separate records.

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Common CIS Mistakes and When to Get Help

A frequent mistake is not registering for CIS when required, which can lead to higher deduction rates or HMRC penalties. Confusing CIS deductions with other taxes like VAT or income tax can also cause errors on your returns.

Keeping detailed records of all payments and deductions is vital for compliance. If your CIS situation is complex—such as having multiple contracts or uncertain status—seeking professional advice from a specialist like Edward Harris can ensure you're claiming correctly and avoiding costly errors.

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