HM Revenues and Customs invented CIS, which stands for the Construction Industry Scheme. It serves as a measure of making tax evasion impossible for the subcontractors in the construction industry.
Before the introduction to CIS, a huge number of self-employed individuals were abusing the fact that the law isn’t able to check up on them. These days, contractors are under the obligation of deducting money from subcontractors’ annual checks and passing it to the HMRC directly.
These payments are counted as an advance towards the worker’s National Insurance and taxes.
Does CIS Affect You?
The Construction Industry Scheme affects all contractors and subcontractors working in the UK construction industry. It doesn’t matter if the subcontractor is registered as a partnership, company, or an organization.
Some businesses and organizations that aren’t directly tied to the construction industry are also affected. Housing associations, property developers and local authorities are some examples.
The rules of the Construction Industry Scheme have to apply to each payment that a contractor makes to the subcontractor during the length of a construction contract. On the other hand, they don’t apply to the personal employees and workers of the contractor.
All repairs, alterations and build services fall under the category of construction work under the CIS regulations
Are You a Subcontractor or a Contractor?
The difference between those two is often complicated to understand. The contractor is an individual or a party that is doing business directly with the main client. On the other hand, the subcontractor is employed by the contractor for part-time work.
Labor and supplies are all dealt with by the contractor, while subcontractors only deal with physical work. After the main client pays the contractor for their arrangements, the contractor then deposits a sum of money to the subcontractor’s bank account.
These differences are extremely important to understand if the CIS rules are affecting you. Each individual party has its own set of obligations and rulesets that they need to comply to.
How HM Revenues and Customs Classifies Contractors
HM Revenues and Customs classifies contractors as individuals who pay subcontractors for different types of work within the construction industry.
It can be businesses or organizations that spend more than 1 million pounds each year on construction expenses over a 3-year time period.
It’s important to note that individuals or agencies that are working on different projects on their own aren’t subcontractors. The rules only apply if they are getting paid by a contractor. It’s also good to note that the work is often subcontracted through a third-party.
This process causes even more misunderstanding among the general public. Even though the third-party might not be doing any construction work, they will still be classified as a subcontractor. This is simply because they are being paid by the contractor.
The aforementioned third-party would also be a contractor while being a subcontractor at the same time. This is because they are paying the hired agency or an individual for doing construction work.
Enrollment with the CIS
If you’re qualified for the CIS, you must be registered within the program prior to doing any construction work.
The Registration Process for the Constructors
Any contractors must register as an employer within the HM Revenue and Customs. This can be done online, through the official site. It’s important to register as soon as possible, as the whole process can take up to two months.
Once you are listed, you’ll get a message from HM Revenue and Customs. This message will give you all the information you require to begin acting as a CIS contractor.
The Registration Process for the Subcontractors
Individual merchants can file for the Construction Industry Scheme online by utilizing their Government Gateway ID. HMRC will want to identify the name of the company or the individual’s name in addition to the UTR and NI numbers.
In case you are joining as a subcontractor, be positive that you are using the same title and business location for your employer as you did when listing with the CIS. Oppositely, they will not be capable of proving your CIS standing.
Repeated Fees and Reports
Every next month, the contractor must give the subcontractor a CIS voucher or a similar document, which describes any tax reductions made.
At that very moment, they need to present their CIS yields to HM Revenue and Customs. This is done to guarantee that the CIS write-offs are being paid in a regular manner.
Fines and Forfeits
The punishments are pretty hard for CIS delayed filing. Missing a deadline by just a few hours will require you to pay a penalty. The fines quickly grow the longer you aren’t filing your documents.
The next increase is after 2 months of being late and it goes up a few hundred pounds if you’re late by 6 months. Any additional delays skyrocket up to a couple thousand pounds, or 100% of the CIS reduction, whichever amount proves to be higher.
Submitting incorrect information is penalized in an even more severe way. Giving wrong documents or trying to hide something from the HM Revenue and Customs can result in an instant fine.
The Construction Industry Scheme can be very complicated to understand without prior knowledge. Lucky for you, this article has a wide range of information that you can use in order to start your journey.
With extensive research and studying, you will be able to get the most out of the CIS system. As a matter of fact, you can even get some refunds on your taxes.
You could also hire professionals, like QuickRebates, to do this work for you. This is because many individuals under the CIS don’t know the full scope of the tax deductions they could benefit from.