CIS Self Assessment
Tax Return Service

• Any business undertaking construction work as a core activity falls under CIS. This includes property developers, building firms, utility companies, and infrastructure specialists.
• Additionally, businesses that don't typically do construction but spend a certain amount on it can also be classified as "deemed contractors" under CIS. This might apply to a property investor refurbishing a building.

• CIS applies to self-employed individuals or businesses hired by a contractor to carry out construction work. This can include plumbers, electricians, bricklayers, decorators, and any other trade involved in the project.
• Importantly, CIS only applies if the subcontractor isn't an employee of the contractor. Employees have taxes and National Insurance contributions deducted through the usual payroll process, so CIS wouldn't be relevant.
• CIS is not mandatory for subcontractors, although there are benefits for those who use the scheme.

CIS covers a broader range of activities than you might initially think. It goes beyond just building new structures and encompasses:

• Site preparation - Laying foundations, groundwork, and access roads.
• Demolition and dismantling - Tearing down old structures or removing unwanted features.
• Building work - From small extensions to major projects.
• Alterations, repairs, and decorating - Renovations, improvements, and painting.
• Installation work - Fitting heating, lighting, power, water, and ventilation systems.
• Cleaning - The final clean-up after construction is complete (interior only).

CIS acts as a tax collection mechanism whenever a contractor hires a subcontractor to perform any of these construction activities in the UK. Both parties have responsibilities under the scheme.

When a contractor hires a subcontractor, verifying their CIS registration status is crucial. This process ensures compliance with the scheme and determines the appropriate deduction rate. Here's how it typically unfolds:

• Requesting Evidence - Contractors are obligated to request proof of the subcontractor's CIS registration status. This can be:
• A CIS registration certificate - This document issued by HMRC confirms the subcontractor's registration details, including their Unique Taxpayer Reference (UTR) number.
• Verification online - Contractors can use HMRC's online verification tool to check the subcontractor's registration status directly with HMRC, requiring the subcontractor's consent.

Based on the verification results, the contractor applies the appropriate deduction rate to the subcontractor's gross invoice amount:

CIS Registered Subcontractors (20% deduction)

• If the subcontractor is verified as registered, the contractor withholds 20% of the gross invoice amount before paying them.
• This 20% deduction is an advance payment towards the subcontractor's income tax and National Insurance contributions.
• The remaining 80% is paid directly to the subcontractor.
• Registered subcontractors receive a CIS payment slip from the contractor, detailing the gross payment, deduction amount, and net payment received. This slip is crucial for their tax records and tax return.
• Important tip! Always include subcontractors with 0% tax deducted.

Unregistered Subcontractors (30% deduction)

• If the subcontractor is not registered, or their registration is invalid, the contractor is legally obligated to withhold a higher rate, typically 30% of the gross invoice amount.
• This increased deduction aims to discourage individuals from avoiding CIS registration and ensures a higher upfront tax contribution.
• Unregistered subcontractors also receive a CIS payment slip reflecting the 30% deduction, but they may face a larger tax liability at year-end, depending on their overall earnings.

Verifying CIS registration status protects both the contractor and the subcontractor.

For Contractors

• Ensures compliance with CIS regulations and avoids potential penalties for non-compliance.
• Mitigates the risk of being liable for the subcontractor's unpaid taxes if they're not genuinely registered.

For Subcontractors

• Ensures they receive the correct deduction rate and simplifies their tax administration.
• Helps avoid potential tax issues at year-end, especially for unregistered subcontractors facing a higher tax burden.

Under CIS, contractors typically withhold a portion of the subcontractor's payment – usually 20% for registered subcontractors and 30% for unregistered ones. This is an advance on the subcontractor's income tax and NIC contributions, as mentioned above.

• Eligibility. Not all subcontractors qualify for this. HMRC sets specific criteria, often involving a good track record of tax compliance and meeting financial benchmarks. These benchmarks typically involve turnover thresholds, such as:
• Sole Trader. Must have a turnover exceeding £30,000 (excluding VAT and materials).
• Limited Company. Must have a company turnover of £100,000 or £30,000 for each director involved in the construction work.
• Partnership. Must have a minimum turnover of £30,000 per partner or a total partnership turnover of £100,000.

• Improved Cash Flow. Subcontractors receive their full invoice amount upfront, improving their cash flow and working capital.
• Simplified Administration. No need to deal with upfront tax deductions and record-keeping associated with them.
• Reputation Boost. Gross payment status signifies a good tax record and financial stability, potentially making you more attractive to contractors.

• Year-End Tax Bill. Even though no deductions are withheld, subcontractors with gross payment status are still responsible for paying their full income tax and National Insurance contributions at year-end through Self-Assessment for sole traders and partners, or Corporation Tax for limited companies.
• Maintaining Good Standing. HMRC can revoke this status if a subcontractor fails to meet their tax obligations or doesn't maintain the required financial benchmarks.

In essence, this is a trust-based system. HMRC allows certain subcontractors to manage their own tax affairs in exchange for a proven track record and meeting financial thresholds.

Your Prescient Accounting tax specialist will explore this option for you to see if you are eligible and process the necessary paperwork to initiate the scheme.

You'll need the CIS payment slips you received from each contractor you worked for throughout the tax year. These slips detail the:

• Gross invoice amount. The total amount you charged the contractor before any deductions.
• CIS deduction amount. The 20% withheld by the contractor.
• Net payment received. The amount you actually received after the deduction.

• Gather Records. Ensure you have all your CIS payment slips for the tax year.
• Self Assessment Platform. Access HMRC's Self-Assessment online portal or use compatible tax software.
• Income Section. Locate the section dedicated to self-employment income.
• Reporting Deductions. Here, you'll find a specific section for "Construction Industry Scheme (CIS) deductions." This might be listed as taxable income already taxed at source.
• Inputting Information. Carefully enter the details from each CIS payment slip (CIS statement):
• Contractor's name and Unique Taxpayer Reference (UTR) number.
• National insurance number
• Gross invoice amount.
• CIS deduction amount.

• Reduces Tax Liability. The Construction Industry Scheme deductions already act as advance payments on your income tax and NI. Reporting them ensures you avoid double taxation.
• Accurate Tax Calculation. By reporting the CIS deductions, HMRC can accurately calculate your overall tax liability for the year, potentially leading to a tax rebate if you've overpaid.

Keep your CIS payment slips organised for easy reference during Self-Assessment.

Consider using accounting software specifically designed for self-employed individuals to simplify record-keeping and tax calculations.

If you're unsure about any aspect of reporting CIS deductions, ask our friendly team of specialist CIS accountants!

By accurately reporting your deductions on your Self-Assessment tax return, you ensure you meet your tax obligations and potentially claim any tax rebates you're entitled to.

• Initial Penalty. A fixed penalty of £100 is charged if your CIS return is submitted late but within one day of the due date.
• Second Penalty. If the return is still not submitted two months after the due date, a further fixed penalty of £200 is applied.
• Increased Penalties. After six months and twelve months of non-submission, you might face an additional penalty of:
• £300 or 5% of any tax liability shown on the return (whichever is higher).
• Further Penalties for Deliberate Withholding. If HMRC believes you deliberately withheld information by not filing a return, even steeper penalties can be imposed.

Appeals must be made within thirty days of HMRC's penalty notice, and they will withdraw the penalty if a CIS nil return is filed to show that no payments were made to contractors during the relevant tax month.

If you, as a contractor, fail to deduct the appropriate amount from a subcontractor's payment, you may be liable to pay the tax yourself, along with potential penalties (see below for details).

Contractors who don't verify a subcontractor's CIS registration status could face penalties, especially if they pay an unregistered subcontractor without deducting the 30% rate.

Contractors are obligated to provide subcontractors with CIS payment slips (also called payment and deduction statements). Failure to do so can result in penalties.

HMRC can impose significant penalties for serious or repeated breaches of CIS regulations. This could involve deliberate attempts to avoid CIS or failing to maintain proper records.

These are examples of potential penalties, and the specific amount will depend on the circumstances.

With our help, you can avoid all of these scenarios and keep HMRC off your back!

CIS Self Assessment refers to the process by which subcontractors in the construction industry report their income and expenses to HM Revenue & Customs (HMRC), ensuring they pay the correct amount of tax.

To register for CIS Self Assessment, subcontractors need to contact HMRC directly, either online through the HMRC website or by phone, providing personal and business details to be enrolled in the scheme.

On your CIS Self Assessment, you can claim expenses directly related to your construction work, such as materials, tools, and equipment, that are essential for performing your contractual duties.

Submitting your CIS Self Assessment online is done through the HMRC website by logging into or creating a Self Assessment account, filling in your tax return with the relevant CIS information, and submitting it digitally.

The deadlines for submitting CIS Self Assessment are October 31st for paper submissions and January 31st for online submissions following the end of the tax year on April 5th.

For late CIS Self Assessment submissions, penalties start at £100 for missing the deadline, increasing over time and potentially including a percentage of the unpaid tax depending on the delay's length.