CIS Accountants for Contractors and Subcontractors
The Construction Industry Scheme decides how much of your money you actually see. If you are a subcontractor, a slice of every invoice goes to HMRC before it reaches you. If you are a contractor, you are responsible for taking the right amount off the right people and filing a return every month, whether you paid anyone or not.
It is not complicated once it is set up properly. It is expensive when it is not.
The deduction rates
There are three:
- 20% if you are registered under CIS
- 30% if you are not registered, or the contractor cannot verify you
- 0% if you hold gross payment status
Deductions are taken from the labour element only. Genuine materials, VAT and the CITB levy come out of the calculation first.
The gap between 20% and 30% is the easiest money in construction. Registration is free and takes minutes, and there is almost no reason to be paying the higher rate.
Do I need to register?
If you are self employed and carry out construction work for a contractor, yes. If you engage subcontractors to do construction work, you need to register as a contractor as well, and that brings monthly obligations.
CIS is a tax deduction mechanism, nothing more. It does not make anyone employed or self employed, and being inside CIS does not stop HMRC challenging employment status separately. That is a live risk in this sector and worth taking advice on.
Gross payment status
Gross payment status means contractors pay your invoices in full and you settle your own tax through your return. For a business turning over a few hundred thousand, that keeps a very large sum inside the business through the year instead of sitting with HMRC.
HMRC apply three tests: a business test, a turnover test, and a compliance test covering whether your returns and payments have been on time. The compliance test is the one that catches people, and status can be withdrawn if you slip.
If you are close to qualifying, it is worth planning for deliberately rather than hoping.
If you are a contractor
You must verify every subcontractor with HMRC before the first payment under a contract. You must give each one a payment and deduction statement. And you must file a monthly return by the 19th, including nil returns for months when you paid nobody.
Late returns attract penalties quickly, and they stack.
Getting your deductions back
CIS deductions are advance payments towards tax, not a final tax. How you get them back depends on how you trade, and this is where a lot of general accountants get it wrong.
If you are a sole trader or a partner, the deductions are set against your Self Assessment liability. Because 20 per cent comes off labour before any expenses or your personal allowance are considered, most subcontractors have paid more than they owe and a refund follows.
If you trade through a limited company, it works differently. Your company offsets the CIS suffered against its PAYE, National Insurance and CIS liabilities each month, through the Employer Payment Summary. It does not come off your corporation tax and it does not go on your personal return. If there is still a surplus at the end of the tax year, the company claims a repayment from HMRC.
That monthly offset only happens if someone is actually filing the EPS with the right figures. If it is not being done, the deductions sit with HMRC doing nothing for your cash flow, and companies can go years without noticing.
What we do
Registration for contractors and subcontractors. Monthly returns filed on time. Verification. Deduction statements. Gross payment status applications and the planning to qualify. For limited companies, the monthly EPS offset so your CIS suffered actually reduces what you pay across, and the year end repayment claim where a surplus remains. For sole traders, reconciling your CIS position so your return claims everything you are entitled to.
We work only with trades and construction. CIS is not a sideline here.
Common questions
Does CIS apply to materials? No. Deductions come off labour. Materials you have genuinely paid for are excluded, provided they are invoiced properly.
I have had 30% taken off. Can I fix it? Register, and future payments drop to 20%. The overpayment comes back through your Self Assessment if you are a sole trader, or through your company payroll if you trade through a limited company.
My company suffers CIS. Where does it go? Against your monthly PAYE bill, via the Employer Payment Summary. Not against corporation tax, and not on your personal return. If nobody is filing the EPS, the money is sitting with HMRC.
Do I file a nil return? Yes, if you are registered as a contractor and made no payments that month.
Is CIS the same as being employed? No. It is a deduction mechanism and says nothing about employment status.
Call to action
Talk to someone who does this every day. Book a call and we will tell you where you stand.