Do you perform construction industry-related tasks? Well, that means you will have to register as per HMRC’s Construction Industry Scheme (CIS). The idea is to make sure the inclusion of the “right” insurance payments and taxes between contractors and subcontractors.
What Exactly is the Construction Industry Scheme?
When a contractor makes a payment to a subcontractor, it should include the subcontractor’s tax status as per HMRC guidelines. Consequently, there is a good chance the contractor will have to make a deduction from the payment. Furthermore, the payment will not include the subcontractor’s cost of materials.
After that, deductions will amount to total costs and National Insurance. A contractor, however, has to register for the CIS, while subcontractors have the freedom to register if they want payment at a relatively lower tax rate, which is contemporarily 20%.
Contractor and Subcontractor: Eligibility Requirements
Generally, you qualify as a contractor so long as you pay one or more subcontractor(s) to take care of the construction work. Similarly, you are also eligible if you spend up to £1m per year on various construction jobs but do not necessarily work in the construction sector.
Concurrently, if you do, however, work for a contractor, then you must register as a subcontractor. And if you want to be a part of the CIS, you should ensure that you fit into all criteria.
CIS Applicability: What Else?
Any work that revolves around temporary or permanent construction structure constitutes as CIS-related work. For instance, the most common type of CIS applicability includes civil engineering like bridge or road construction.
Also, projects that include repairs, decorating, extensions, or building any construction work will apply to CIS. Additionally, the installation of modern heating, power, or air condition system is also part of the CIS. Remember, the construction industry scheme applies to extensive cleaning and demolition work as well.
That said, you must speak to an official to identify whether or not your project falls under CIS. The underlying purpose is to figure out if your project has any CIS exemptions.
CIS Registration
Whether you operate as a sole trader, partnership, or any other type of company, there is a good chance you will qualify to register for CIS. However, make sure that your registration is official with the HMRC. In fact, HMRC can help you set up your contractor scheme.
Moreover, you can register for self-assessment and CIS simultaneously. However, if you are not remotely familiar with the registration process, it is better to talk to someone that understands different aspects of the Construction Industry Scheme.
If your business, for instance, operates outside the boundaries of the UK, while the contractor and subcontractor work in the United Kingdom, you can still be eligible for the Construction Industry Scheme.
Nonetheless, you should make sure to run basic details such as the geographical applicability and nature of your business by an expert. Seeking the guidance of a specialist will practically allow you to find out about your personal limitations and thwart possible complications.
We can help with all of your business and personal tax and financial planning needs. For a strategic review of your finances, please contact us.
Disclaimer: We don’t take any responsibility for actions taken based on above information. Please speak to our financial advisor if you need more information. This guide was written specifically for Smart Accounting clients. Some of the information contained in this guide might not be applicable if you do not have a business managed by Smart Accounting. By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details are correct at time of writing.
