Registration
You will need to register as a CIS contractor if you plan on paying subcontractors for ‘construction work’. CIS covers most construction work to a permanent or temporary building or structure. For the purpose of CIS, construction work includes:
preparing the site, e.g. laying foundations and providing access works
demolition and dismantling
building work
alterations, repairs and decorating
installing systems for heating, lighting, power, water & ventilation
cleaning the inside of buildings after construction work
Click here for instructions on how to register.
Verification
As a CIS contractor you have a duty to deduct the correct amount of tax from payments made to CIS subcontractors. In order to know which rate to deduct from your subcontractors (30%, 20% or 0%) you need to verify them with HMRC before you pay them. It’s important that you verify contractors because if you deduct too little from them, you could be liable for the difference!
If you are using Xero, you should be able to verify your subcontractors through the software: https://central.xero.com/s/article/Create-and-verify-a-CIS-contact#VerifyaCISsubcontractorinXero
Dates
You’ll be required to submit a monthly form (called a CIS Return) to HMRC. The CIS Return covers a period from the 6th of every month until the 5th of the next month. The CIS Return along with payment is due 14 days after the period end date on the 19th of the month (we would suggest setting up a direct debit with HMRC and this can be done through your business government gateway account).
For Example
A CIS period that runs from the 6 January 2000 to 5 February 2000 is due to be submitted and paid by 19 February 2000.
Labour & Materials
The subcontractor will need to split out labour and material costs when they invoice you.
CIS tax is only deducted from labour (not materials) and so some subcontractors may try to inflate the materials split in order to have less tax deducted from their invoice.
It falls on your shoulders to sense check the split between labour and materials because if the wrong tax is deducted you may be liable for the underpayment in tax.
Subcontractor Invoices - CIS Deduction
Invoice Example
If a subcontractor sent you an invoice of £8,000 Labour, £2,000 Materials you wouldn’t pay them £10,000. Instead you’d ‘verify’ them to find out how much tax you need to deduct from them - lets assume that in our example the subcontractor has been verified and that their deduction rate is 20%.
£8,000 Labour
£2,000 Materials
£10,000 Total
(£1,600) CIS deduction @ 20% of £8,000 labour cost
£8,400 Payment
The total amount on a subcontractors invoice is £10,000. Instead of paying them £10,000, you would pay them £8,400 and then pay £1,600 to HMRC on their behalf as part of your CIS Return.
Subcontractor Invoices - Reverse Charge VAT
If you are a VAT registered contractor, its your responsibility to not pay any VAT to CIS registered subcontractors. If a CIS registered subcontractor adds VAT to their bill, you’ll need them to reissue the bill without the VAT included using the domestic reverse charge method.
For more on the reverse charge, click here.
Under no circumstances should you pay VAT to a subcontractor within the CIS scheme.
CIS Returns
The information included on your CIS Returns is as follows:
The subcontractors Personal/Business Name
How much you paid them in Total Payments (Labour & Materials excluding VAT)
How much you paid them in Total Materials (excluding VAT)
How much CIS Tax you deducted from them
Penalties for late returns
Fines can accumulate quite quickly in the CIS scheme so make sure you’re on top of things. I’ve seen on multiple occasions situations where people have had thousands of pounds in fines!
You’ll get a penalty if you miss the deadline for filing returns. Below is a list of how much you’ll be fined if CIS Returns are submitted late - this is per monthly return!
1 day late = £100
2 months late = £200
6 months late = £300 or 5% of the CIS deductions on the return, whichever is higher
12 months late = £300 or 5% of the CIS deductions on the return, whichever is higher
