CIS Returns stands for Construction Industry Scheme Returns, which contains a set of rules by HMRC on how the subcontractors who are working with the construction industry are to be paid. It is mandatory to inform HMRC on how much tax is deducted from subcontractor’s who are working under your supervision by filing CIS returns. The amount should be paid to the HMRC. A percentage of the payment is deducted and transferred to HMRC.
Who is covered by CIS
If you are a subcontractor, then it is essential for you to register with HMRC. If your plan is to use subcontractors, you first have to register with CIS.
Verify subcontractors
If you own a company and you want to use a CIS registered Sub-contractor, As their recruiter, it is your responsibility to report for the tax for your sub constructors. You have to declare in your CIS return that the subcontractors are not employees. If you don’t mention the correct employment status of your subcontractors and their details on your monthly return, you will be charged with a penalty by HMRC of up to £3000. There is no requirement to file CIS returns for those months when you have not paid to the sub-contractors. However, you have to tell HMRC that you don’t have any return due.
Make deductions and pay subcontractors
Presently 20pc tax is supposed to be deducted from the registered subcontractor’s fee, and 30pc is deducted from the certified subcontractor. These taxes should be mentioned on the invoice. These taxes will generally be held in your account, and the amount will be posted to a holding account which provides the details of the subcontractor. The amount will be then paid to HMRC the next month. The deductions are accounted towards the payment for the subcontractor, and it also contributes to your tax purposes.
Record keeping
To file the Construction Industry Scheme (CIS) Returns, you need to maintain a record of the following accounts-
- Gross paid amount, excluding the VAT amount as invoiced by subcontractors.
- Deductions you made from Subcontractor payments (if applicable)
If you made deductions from payments, you have to maintain a record of the cost of the material you (excluding VAT) for which the subcontractor charged.
After every tax year, you have to maintain these details for at least the next three years. HMRC can ask for these records anytime, and if you cannot show the records, you will be fined up to £3000.
Informing HMRC about changes
You have to tell HMRC about these following changes –
- Change of your house or business address
- Change in your business structure. For example – If you convert from a sole trader to a limited company
- Contractor’s death
- If you work as multiple contractors and take on other contractor’s business, you have to HMRC within 90 days.
- If you stop your business or stop using subcontractors. In this case, you should do the following – Inform HMRC within 90 days
- Stop filing the monthly Construction Industry Scheme (CIS) Returns reports to HMRC. You have to do this even if you stop using subcontractors temporarily.
