Running the financial admin of your construction business used to be relatively easy. You paid your subcontractors weekly, cash in hand, and everyone was happy about that – with the possible exception of HM Revenue & Customs (HMRC)
Then, in 2007, the Government brought in the Construction Industry Scheme (CIS). The scheme applies to all contractors and subcontractors in the construction sector and is intended to improve the way tax is paid to HMRC by the industry.
But the knock-on effect of the CIS is a more complex payroll and tax system for your construction business. And a lot of confusion for subcontractors who don't fully grasp why there are deductions coming out of their pay packet.
So, what's the overall impact of the CIS for your construction business?
We're going to explain the basics and also show you how you can remove some of the big admin challenges.
Who's actually affected by the CIS?
At present, the scheme applies to three distinct groups:
- Construction business (contractors) that pay subcontractors for construction work.
- Any business that spends an average of more than £1 million a year on construction in any 3-year period (even if you're not a construction company).
- Subcontractors that do construction work for a contractor.
So, if you take on subcontractors to do construction work, there are certain things you're now required to do under the scheme. And, as you'll see, there's a fair amount of admin and financial know-how involved to make sure you're meeting your CIS requirements.
What does the CIS require you to do?
Contractors have to:
- Register under the CIS scheme with HMRC.Register your business with HMRC for self-assessment as well.
- Check with HMRC to find the status of your subcontractors.
- Pull together monthly CIS returns showing payments to your subcontractors (and send these to HMRC).
- Deduct tax at source from your subcontractors (and at the rate specified by HMRC).
- Pay this deducted tax to HMRC.
How about if you're a subcontractor working on a contract with a construction company or other business? If that applies to you, you're still required to register for the scheme and comply with the rules.
Subcontractors have to:
- Register under the CIS scheme with HMRC (and register with HMRC for self-assessment if you haven't already)
- Share your Unique Tax Reference Number with the contractor so you can be verified for their payroll run
- Pay your annual self-assessment tax return
- Claim the relief on any CIS tax deducted from your wages by the contractor
CIS is a complex business, so let us help
As you can see, complying with the CIS is no walk in the park – and it's certainly a far more involved and complex process than it used to be.
And this is where getting professional guidance and help can really pay off.
At Bespoke, we've been dealing with the implications of the CIS for a number of years. So we understand the issues, we know the pitfalls and we have procedures and systems in place to make the whole process of meeting your CIS requirements a whole lot easier.
How we can help you with CIS requirements
- Cloud-based accounting that streamlines your financial admin
- Verification of your subcontractors so you know who you're paying and what to deduct
- Simple, straightforward payroll functions that automatically make the right payments and deductions for you
- Full online record keeping through your cloud accounting software so you can submit your data and monthly returns to HMRC
So, if the administration of the CIS is taking you away from running your construction business, why not come and talk to us about how we can help. We can make sure you're compliant, efficient and building great relationships with your subcontractors (and even with HMRC!).