Firstly, what is CIS?
The Construction Industry Scheme (CIS) is used by HMRC as a way of collecting Income Tax from those workers who are subcontractors within the construction industry. Essentially, if you work in the construction industry and are not paid through PAYE (as an employee), then you are deemed to be a contractor (self employed).
As a subcontractor, you will need to register with HMRC for the scheme. If you are a full time employee and are paid through PAYE then you dont need to do anything.
But what is the point of CIS?
Historically, subcontractors in the construction industry were paid in cash and this made it difficult for HMRC to collect taxes and confirm how much people actually owed in tax. In 1971, CIS was established and meant that HMRC could now tax individuals on their subcontractor income as soon as it was paid by the construction entity.
This covers a wide range of subcontractor roles across the construction industry, including decorators, carpenters and demolishing and dismantling.
Why should I register with CIS though?
If you register with the scheme, you will have 20% tax deducted from your earnings. If you are not registered with CIS then 30% tax will be deducted from your earnings. If your invoice includes direct expenses such as for materials or tool hire, then tax should not be withheld from these amounts, as you should be paid 100% of these costs without any CIS deductions withheld.
Also, if you register for the CIS and your tax affairs are up-to-date then you can apply to HMRC to have gross payment status, which will allow the contractor to pay you without making any deductions at all, so you should be paid 100% of your invoices.
The CIS deductions are known as Advanced Payments. When you come to filing your annual self-assessment tax return, you can then net these Advanced Payments against your actual tax charge. Any refund will then be issued to you by HMRC.
When you complete your tax return you will need to include your total sales income, which will be the amount that you have invoiced, not the amount you received after the CIS deductions. This is the case even if your invoice includes amounts for things like materials and tool hire. Your tax return must also include any business expenses that are to be deducted from your self-employed income to arrive at your self-employed profit
So as you can see, registering with CIS will not only help your monthly cash flow, but will also make sure you are up to date with HMRC on your tax affairs.
How can I help you?
That’s a great question. Not only can we help you with your annual self-assessment tax return, we can also advise you on how to register for CIS and ensure the correct deductions are been taken. Drop us an email on hello@jdell.co.uk and let us take the stress out of this for you!
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