Nov 10, 2024

Register for CIS: The Ultimate Guide

What is CIS? The Construction Industry Scheme (CIS) is a tax deduction scheme where contractors deduct money from subcontractors' payments and pass it to HM Revenue and Customs (HMRC). CIS deductions are relieved at the source and act as advance payments for the subcontractor's tax and national insurance.

Builders who do not comply with the scheme may face penalties, including extra deductions and fines. Hence, understanding the CIS registration process is crucial for easing your operations. Fortunately, HMRC's website provides a comprehensive framework for CIS tax and related procedures.

However, the literature provided is extensive and confusing. As usual, much information must be inferred. Therefore, we have created this CIS guide to cover the main points more straightforwardly, including how to register for CIS online and navigate the HMRC CIS online service.

Understanding the basics

The CIS scheme focuses on businesses operating in the "construction work" line within the UK construction industry. However, HMRC's definition might not be what you think.

What is considered construction work?

The CIS considers all the following as construction work:

Site preparation – This includes duties like laying foundations and providing access works.
Alterations Dismantling
Construction
Repairs – This also includes cleaning the inside of buildings after construction.
Decorating
Demolition

This classification is central to the Construction Industry Scheme (CIS) and directly impacts CIS deductions.

An important side note: the CIS concerns all construction work completed inside the UK. Even if your business is based outside the UK, if the work is completed within the region, then you are subject to the CIS. (UK territorial waters up to the 12-mile limit are considered inside the UK.) This applies to overseas contractors as well.

There are also some apparent exceptions for what the CIS does not view as construction work:

Architecture and surveying
Scaffolding hire (with no labour)
Carpet fitting
Making materials used in construction, including plant and machinery
Delivering materials
**Work on construction sites that are not construction – **for example, running a canteen or site facilities.

What business types are considered under the scheme?

Contractors and subcontractors typically fall into one of these categories:

Companies
Partnerships
Self-employed individuals (CIS self-employed)

What are the differences between contractors and subcontractors?

According to the CIS rules, a CIS contractor is a business that pays subcontractors for construction work, including construction companies, building firms, government departments, and local authorities. Under this system, private households would not be considered contractors and, therefore, must not adhere to these guidelines.

A CIS subcontractor is "a business that carries out construction work for a contractor". Sometimes, you may have to act as both or either party. In that case, follow the rules for both contractors and subcontractors. If you pay someone for construction work but do not consider them their own business, they should be regarded as employees, not subcontractors.

Under the CIS, contractors and subcontractors must diligently manage their income tax and National Insurance contributions, which may include submitting a self-assessment tax return.

Where should you get started?

Registering as an Employer

When ready to handle tax payments under the CIS, register as a new employer here. After registering, the HMRC will set up your Contractor Scheme and instruct you where to find further information, including how to access your business tax account.

Registering as a Subcontractor

When ready to start working in the construction industry, you should register for CIS online as a subcontractor. Regarding subcontractors, there are different forms depending on whether you are a sole trader or another type of business. You should check out the government site for more information on these forms. After you register, HMRC will contact you to confirm and provide information for the next steps, including your CIS registration number.

When registering as a subcontractor, you should also consider whether you want your contractor to make deductions or if you want to receive a gross payment. If you receive a gross income, you will still be responsible for deducting the appropriate taxes later. This is known as gross payment status, as opposed to net payment status, where deductions are made at the source.

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What are contractors responsible for?

Subcontractors Verifications

Verifying subcontractors is one of a contractor's most critical responsibilities. Before paying a subcontractor for their work, you must confirm that the subcontractor is CIS registered. The HMRC will then further assist by letting you know what their deduction rate should be or whether the subcontractor has requested gross payments. This process is known as CIS verification.

Verifying your subcontractors can be done using the CIS Online Service or commercial CIS-integrated software such as Moonworkers. You must perform a CIS check using the subcontractor's CIS reference number during this process.

Calculating tax and National Insurance

The CIS states that contractors must calculate payroll deductions on behalf of the subcontractors. This is a key aspect of the tax deduction scheme.

If you are a contractor responsible for making a deduction, here is what you must consider when making payments:

Calculate the deduction (which may be at a higher rate or standard rate depending on the subcontractor's status)
Make the deduction
Record details of the payment, materials, and deduction
Make the net payment to the subcontractor
Complete and give the appropriate statement of deduction to the subcontractor.

Accurate CIS deductions are vital for compliance, and these should be meticulously reported in your monthly CIS return. However, in the instance of an error, you can contact the HMRC to attempt to make corrections. Proper record-keeping is essential for this process.

Returns

Every month, contractors must send a return of all payments and deductions through the CIS 300 online service. HMRC-recognised payroll software makes this service available within their system. The HRMC must have these CIS returns within 14 days of payment.

Your returns should include:

Details of the subcontractors
Details of the payments made and any deductions withheld
A declaration of compliance
Confirmation that you have verified all subcontractors

You must use your CIS login to access the HMRC CIS online service to submit a CIS return.

Paying HMRC

Contractors must use the HMRC's PAYE online service to send payments for statutory deductions. This is part of the overall CIS submission process.

Why might a commercial CIS software be an excellent investment?

We have summarised the responsibilities of a contractor through the CIS into these four main categories:

Verifying subcontractors
Making deductions from payments
Send filings
Pay HMRC

Although the HMRC has an online portal (cisonline) for submitting payments, contractors are mainly responsible for calculations and assessments, which is not straightforward.

When making deductions, you'll need to complete the following calculations:

First, determine the total amount before deducting VAT charged by the subcontractor. Consider whether the subcontractor is VAT-registered. You must record this gross amount to enter it on your monthly returns.
Second, subtract the subcontractor's expenses from the gross payment amount. These expenses include materials, consumable stores, fuel, plant hire, and manufacturing or prefabrication costs.
Third, calculate employer and employee National Insurance.

After calculating deductions, the contractor will still be responsible for sending returns to the HMRC each month. Using the HMRC CIS 300 online service, you can input all the records you kept for gross amounts paid, deductions, etc.

Calculating NI can be complex, especially with other business tasks like payroll. This can be overwhelming. However, when assisted by CIS commercial software, you can significantly reduce the stress associated with automating most of it.

Moonworkers, an HMRC-recognised CIS software

Commercial CIS software can be particularly beneficial for builders, streamlining their CIS duties and compliance processes. While some commercial CIS software may solely help with CIS duties, Moonworkers strives to do more for business owners.

Moonworkers was established to help CIS businesses streamline their subcontractors' onboarding verification, payroll, and CIS 300 submissions. It can help you navigate HMRC regulations more efficiently and ensure you follow all aspects of the CIS guide.

You have several options to learn more about our system and see if it meets your needs. Book a demo, chat with our experts, or try the Moonworkers platform to simplify your CIS processes from registration to submission.