CIS
The Construction Industry Scheme (CIS) is a tax deduction scheme which involves tax being deducted at source from payments which relate to construction work. CIS does not apply to payments made to employees, since payments to employees are covered by the PAYE system of deduction of tax at source. Although the burden of operating CIS is mainly that of the person making the payments, the rate at which tax is deducted depends on the status of the recipient.
How it works
CIS will apply to payments made by a contractor to a subcontractor. If the subcontractor passes three tests – known as the business, turnover and compliance tests – and registers with HMRC, it will receive gross payments from the contractor.
CIS requires the contractor to deduct tax at source on any payments it makes to the subcontractor. The rate at which tax will be deducted depends on the registration status of the subcontractor.
Knowing your CIS obligations
The contractor must register via HMRC’s website.
As CIS does not apply to employees and only applies to self-employed workers, the contractor must check that the people it is paying are not its employees. The distinction between employees and self-employed workers can sometimes be a tricky legal one. HMRC’s website features an employment status indicator which can be useful in cases of doubt.
The Contractor needs to verify the status of the recipient of its payments. Verification can only be done once a contract has been entered into, or once the subcontractor has accepted tender for work under a contract. Verification can be done through HMRC’s online CIS service.
We can help
As contractors must keep records of the gross amount paid, the cost of materials deducted, the amount of tax deducted and the verification number (if applicable), let Kangaroo PAYE manage this administrative burden for you.
We take away the headache of monthly returns to HMRC, including when no payments have been made, allowing you to focus on doing business and maximising your returns.
If you have any further questions, clarifications or general concerns you would like to talk through, please do reach out and contact the Kangaroo PAYE team today to find out more!