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CIS Contractors Tax Return

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What is CIS
DNS supports accounting for the Construction Industry Scheme (CIS).

CIS is a series of regulations for contractors and sub-contractors working within the UK construction industry. Basically it is a quirky tax that is specific to workers within the construction industry.

If you work in the construction industry as a contractor DNS can:

  • Advise you on your status
  • Advise on whether your subcontractors fall into the subcontractor or employee status (or both)
  • Verify them on your behalf with Her Majesty’s Revenue & Customs (HMRC) (if needed)
  • Keep your records in good order
  • Payroll

 

When any subcontractors work for you, you must decide whether to treat them as an employee in which case you will operate a PAYE scheme whereby tax and National Insurance Contributions (NICs) will be deducted from the payments made to them, or whether to treat them as self-employed.

If and when you verify your subcontractors as self-employed the payments you make to them as the contractor will be dealt with through varying types of deductions.

How does it work?
On the HMRC website CIS is introduced as follows:

The Construction Industry Scheme (CIS) sets out the rules for how payments to subcontractors for construction work must be handled by contractors in the construction industry.

Contractor pays subcontractor

When a contractor pays a subcontractor, the contractor withholds 20% of any subcontractor labour costs (Net). The contractor is required to pay this withheld balance over to HMRC on a monthly basis.

The subcontractor can reclaim the 20% withheld by the contractor. The subcontractor reclaims the amount from HMRC at the end of the tax year. In practice, the reclaimed amount is knocked off any tax owed by the subcontractor to HMRC.

The scheme is effectively a way for HMRC to use contractors to tax subcontractors up front.

Monthly returns and implications

Paying subcontractors

Under the rules of the Construction Industry Scheme (CIS), contractors can make either gross payments or payments under deduction to subcontractors for construction work.

If you make gross payments to subcontractors you need to register them with HMRC.

This guide explains what you need to do if you are a contractor to make sure you correctly pay your subcontractors. It also explains in brief how to work out their pay.

Guide to paying CIS subcontractors

Under the Construction Industry Scheme (CIS), contractors have to “verify” the subcontractors who work for them. This means checking their payment status with HMRC so you can pay them the right amount.

When you get a subcontractor to do work covered by CIS, you need to register them with the scheme as soon as possible if they are not already registered. The information HMRC needs to register them depends on whether the subcontractor is trading as a sole trader, a partnership or a company – but generally, it will include their name, business name and business address and other details about their business.

You can also ask HMRC to record one trading name on behalf of your subcontractor.

The subcontractor will need to supply you, the contractor, similar details. When you contact HMRC to verify the subcontractor, HMRC will match up the information given to you by the subcontractor with the details they hold.

If the subcontractor is not registered – or if HMRC cannot verify the subcontractor because they have not given you the correct details about themselves – you may have to make the deduction from your subcontractor’s payments at the higher rate.

Payment under CIS – gross or under deduction

Under the Construction Industry Scheme (CIS), there are two ways of paying subcontractors – gross or under deduction.

If the subcontractor is registered for gross payment, you the contractor pay the subcontractor in full without any deduction. So the subcontractor is responsible for paying his or her tax and National Insurance contributions (NICs) on this amount later through their tax return.

If the subcontractor is registered for payment under deduction, the contractor takes off an amount (currently 20 per cent) before paying the subcontractor, which must be paid over to HMRC.

Gross payments under CIS

In order to ask HMRC to register a subcontractor for gross payment, their business must:

  • Do construction work in the UK and be run largely through a bank account
  • Have a construction turnover, excluding VAT and the cost of materials, of at least £30,000 each year (more for partnerships and most companies)
  • Have complied with all its tax obligations

Before HMRC can grant a subcontractor gross payment status so that they are paid with no deductions, they will need to show that their business passes three tests:

  • carries out construction work – or provides labour for construction work – in the UK
  • is run largely through a bank account

Turnover test: HMRC will look at your business turnover from construction work for the 12 months before you apply for gross payment status.

Ignoring VAT and the cost of materials, the subcontractor’s construction turnover must be at least:

  • £30,000 if a sole-trader
  • £30,000 for each partner in a partnership, or at least £200,000 for the whole partnership
  • £30,000 for each director of a company, or at least £200,000 for the whole company

If five people or fewer control the company, it must have an annual construction turnover of at least £30,000 for each individual.

CIS payments under deduction

If a subcontractor does not qualify for gross payments, as the contractor you are obliged to make a deduction on account of their tax and NICs before paying them. The standard deduction rate of 20 per cent applies if the subcontractor has registered for CIS and their details have been verified successfully by you the contractor.

If the subcontractor has not registered for the Construction Industry Scheme (CIS) or you the contractor could not verify them, you will have to make deductions at the higher rate of 30 per cent. The subcontractor can claim credit for these deductions through their annual tax return.

Subsistence and travelling expenses count as pay, so are liable for deductions too. But VAT, the cost of materials and certain other costs like plant hire do not count as pay, so you the contractor will exclude them when you work out how much to deduct.

At the end of the financial year, the subcontractor will need to complete a tax return. HMRC will work out the subcontractor’s tax and NICs bill and set any deductions made against it. This will show whether your subcontractor is due a refund or needs to make further payments.

If you are paying subcontractors under deduction, ensure you give the subcontractor a monthly statement of payments and deductions. You can provide these if your pay your subcontractors gross too. These statements enable the subcontractor to fill in his or her tax return.

Subcontractor nominating someone else to receive payment

If the subcontractor chooses someone else to receive payments on their behalf – like a gang member, workmate, relative or debt factor – they should also register with HMRC. This person is called the “nominee”.

If the subcontractor is registered to be paid gross, you the contractor will pay the nominee gross as long as the nominee is registered for gross. But if they are not, they will be paid under deduction – even if the subcontractor is registered to be paid gross.

Payments under CIS if a subcontractor dies

If a subcontractor dies, their personal representatives will receive any outstanding payments due.

If the subcontractor was registered to be paid gross, their personal representatives will be paid gross as well.

If a liquidator, receiver or administrator is dealing with the subcontractor’s company affairs, any outstanding payments will be made according to the company’s tax status.

What can DNS do for CIS contractors?
DNS supports PDF invoices for CIS. On our CIS invoices we show Net, VAT, CIS amount, and total Due after CIS.

The system builds up the balance owed to HMRC by the contractor, and the balance due from HMRC to the subcontractor.

DNS CIS contractor limited company services
  • Formation of your limited company/ VAT and PAYE registration for your limited company
  • Setup of business bank account (if required)
  • Professional indemnity insurance
  • Acting as your registered office including full company secretarial support
  • An intuitive online accounting portal that creates invoices, where you can enter expenses and monitor your financial position
  • Chasing client payments
  • Quarterly VAT returns
  • Your personal tax return
  • Professional expenses / HMRC investigation insurance
  • VAT investigation insurance Should be Tax Investigation Service
  • Monthly payroll service including year-end submissions
  • Real time position of your limited company, showing profit to date, what you need to reserve for tax and what is available as dividends, all accessible through our online accounting portal.
  • Annual statutory accounts
  • Filing all statutory returns including corporation tax return
  • Dealing with all correspondence from HMRC and Companies House

How it all works

DNS is trained to advise our clients regarding all aspects of payroll preparation and compliance. In fact we can offer a complete payroll service if you would like to outsource this time consuming process.

We can also provide human resource consulting and advice on recruiting and retaining staff.

If you would like to discuss PAYE or any of the issues on this website, do contact us. If you need a full payroll service then we are here to assist.

Expenses
Some common expenses are:

  • Company formation
  • Accountancy fees
  • Business travel and accommodation
  • Postage for business
  • Stationery for business
  • Business telephone calls
  • Mobile telephone and calls
  • Salaries
  • Employer’s NI contributions
  • Contributions to an executive pension plan
  • Business entertainment
  • Equipment purchased for business purposes
  • Motoring expenses using fixed rate allowances
  • Computer software
  • Technical books and journals
  • Certain professional subscriptions
  • Use of home as office
  • Company bank charges and interest
DNS limited company packages
DNS provide specialist accountancy services designed exclusively for contractors and small businesses. We advise you of, or action, any financial and/or legal loopholes in tax and employment law that may impact on your income and your legal status.

DNS have expert knowledge in personal and business tax returns and tax planning, National Insurance, VAT, IR35 legislation and payroll. The DNS online accounting portal ensures you keep up to date with your real time finances and ensures DNS manage and optimise your income.

How does it work?
We understand that all businesses manage their cash-flow differently and that is why we have payment plans to suit everyone. If you are not able to pay your fee in full we are happy to accept payments on a monthly or quarterly basis via a standing order or by cheque.

DNS offer for CIS Contractors:

  • Easy affordable monthly payment without penalties.
  • Holiday periods if you stop trading temporarily.
  • A “no foal no fee” guarantee: you pay our fee only when you are 100% satisfied.
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