CIS COMPLIANCE FOR CONTRACTORS
Compliancy in our mind is no doubt the biggest concern for employers embarking on a scheme like this. Despite several revisions the CIS scheme remains a time consuming and complicated process for all contractors.
Without enrolling in a CIS scheme you are responsible for all of the administration work. This includes:
- Verify each subcontractor with HMRC
- Calculate and pay CIS tax
- Inform the subcontractor the amount that they will be paid
- Take full responsibility for all status submissions to the revenue
- Provide both a payment statement (for each time the subcontractor is paid) and an annual CIS deduction statement.
The penalties when CIS returns are late
If any of your CIS returns are one day late, HMRC will charge an initial fixed penalty of £100.
If HMRC still haven’t received that return:
- 2 months after the date it was due, they will charge a second fixed penalty of £200
- 6 months after the date it was due, they will charge a further penalty of £300 or 5% of any liability to make payments that should have been shown in the return
- 12 months after the date it was due, they will charge a second further penalty – the amount of this penalty will depend on why your return was late
The amount HMRC charge will be either £300 or 5% of any liability to make payments, or a ‘higher’ penalty of:
- up to 100% of any liability to make payments
- a minimum penalty of £1,500 or £3,000
Contractors, both mainstream and deemed, operating as a sole trader, as a partnership, or a limited company, must register as a contractor with HM Revenue and Customs (HMRC) under the Construction Industry Scheme (CIS) if;
- you pay sub-contractors for construction work (mainstream contractor)
- construction isn’t the primary activity of your business but on average your annual expenditure on construction operations is more than £1 million over the period of 3 years (deemed contractor)
To achieve compliance, contractors must…
- Register as a contractor under CIS, through HMRC, before you take on your first sub-contractor.
- Consider employment status and whether the individual should be an employee, rather than a sub-contractor, to avoid a penalty.
- Run checks with HMRC to verify the sub-contractors’ CIS status (gross, net or unregistered).
- Make deductions from sub-contractors’ payments, where appropriate, and pay the deduction across to HMRC. Deductions count as advance payments towards the sub-contractor’s tax and National Insurance bill.
- Provide written pay deduction statements to your sub-contractors detailing the deductions made and paid across to HMRC.
- File monthly CIS returns to include all payments made to all subcontractors within CIS in the preceding month (regardless of whether they were paid gross or net).
- Keep full CIS records of the sub-contractors used and the gross amount paid, amount of deduction and cost of materials, or risk a penalty.
- Inform HMRC about any changes to your business.
- Have appropriate policies and procedures in place to prevent any minor non-compliance from a breach of the terms of any finance provided by third-party lenders.
Hover over the images below to find out more about CIS Compliance