If you run a business in the construction industry, the acronym „CIS” should be familiar to you. In contractor-subcontractor relationships, specific requirements must be met. This means, among other things, the need to report to HMRC, keep mandatory records, and verify your contractors.
What is the CIS system in the UK?
The Construction Industry Scheme (CIS) regulates the relationships, payment rules, and accounting between contractors and subcontractors.
A contractor is any company paying other businesses—subcontractors—for construction work. Moreover, the role of a contractor can be performed not only by companies strictly involved in construction but also by businesses and organizations outside the construction industry that have spent more than £3 million on construction investments over 12 months. Contractors can include:
- self-employed individuals and companies (e.g., Partnerships and Limited Companies) conducting or commissioning construction work,
- developers and construction speculators responsible for building and modernizing properties for profit,
- individuals organizing workers for construction projects,
- foreign companies performing construction work in the UK,
- commercial companies not related to construction, public sector entities, and local authorities commissioning or conducting construction work.
When must you register for CIS? How to register?
Any contractor operating in the construction sector is required to register for CIS with HMRC. Registration must be completed before entering into a contract with the first subcontractor. To do this, you need to contact HMRC, which will confirm the registration in writing and send the contractor all the necessary documents and information regarding CIS accounting.
What are your obligations under the Construction Industry Scheme?
Under the CIS scheme, the contractor is required to verify each subcontractor. So, before you make your first payment, you must check with HMRC that the subcontractor is registered with the CIS scheme and what rate of advance payment should be applied.
The next step is to pay the subcontractor the amount remaining after deducting the tax advance paid to HMRC for income tax and national insurance contributions. These deductions amount to 20% for registered subcontractors, 30% for unregistered subcontractors, and 0% for companies with gross payment status.
As a contractor, you must also submit monthly CIS returns to HMRC and provide the subcontractor with a certificate of deductions and withholdings made.
It will also be your responsibility to keep records, within the CIS system, of a register showing the gross amount of each payment invoiced by subcontractors (excluding VAT), as well as noting any deductions from subcontractor payments. Keep the records you collect for at least three years after the end of the tax year to which they relate.
If your company details (e.g., address, company structure) change, you must notify HMRC. You must also report when engaging another contractor or if you temporarily or permanently stop trading or commissioning subcontractors.
Seek professional help and don’t worry about CIS!
Running a business in the UK, let alone a construction company, requires you to learn a lot of systems, regulations and complete a lot of paperwork. But you don’t have to face the incomprehensible requirements of UK law on your own. Use the offer of our office and entrust your accounting to the right hands. We will take care of the requirements imposed by the CIS, and you will gain additional time for the development of your business and the certainty that your company is operating in compliance with current regulations.
