If you work in construction and hire the services of other construction businesses you need to be aware of the Construction Industry Scheme (CIS). The scheme is where contractors deduct tax on the behalf of their sub-contractors then pay this tax to HM Revenue and Customs (HMRC).
Firstly you would register as an employer with HMRC, making sure to note that you will be taking on sub-contractors and using the CIS. The next step is to verify any sub-contractors that you have working for you, so HMRC can ensure you deduct the correct amount of tax.
You can verify a sub-contractor through the CIS helpline or the software or service you are using to manage your CIS. You will need the sub-contractor’s trading name, Unique Taxpayer Reference (UTR) and either their National Insurance number or company registration number depending on if they are a sole trader or limited company.
Once verified you will receive a verification number and the rate you will need to deduct tax from the sub-contractor’s invoices at.
When you receive an invoice from your sub-contractor, you must deduct tax from the labour portion of the invoice amount. This means you subtract any VAT or materials that have been added to the invoice before deducting your tax. Tax can be deducted at one of three rates: 20% is the usual amount, though if they cannot be verified you would deduct at 30%. If the sub-contractor has gross status you will not deduct any tax.
You will also need to produce CIS vouchers to give to the sub-contractor, these show the invoice amount and lets them know how much tax was deducted.
Every month you need to submit a CIS return. The returns cover the period from the sixth of a month to the fifth of the following month. Any tax you have deducted for that period must also be paid to HMRC. The deadline for both is the nineteenth of the following month or two weeks from the end of the period. You can pay the CIS tax alongside any employee tax and National Insurance Contributions (NIC) due that month.
Penalties for not filing
If you do not file the return on time, you will be liable for a penalty which starts at £100 for a day late. You get an additional penalty of £200 for two months late then at six and twelve months late you get additional penalties of £300 or five per cent of the tax owed, depending on which is higher. Any later and you could have a penalty of £3,000 or one hundred per cent of the tax depending on which is higher.
If you inform HMRC that no subcontractors were paid, the penalty will be cancelled.
Be sure to keep records of the invoice amounts for labour materials and VAT, etc. You will also need to keep records of the tax deducted. This will be helpful if HMRC decides to look into your business.
If you require any more information on advice regarding the above, or for CIS or payroll in general, please do not hesitate to contact us.