Construction industry returns: The importance of laying a solid foundation 

The construction industry can be complicated in terms of employment with contractors, subcontractors, casual and permanent staff all working together.

And when it comes to taking on subcontractors, there is a certain set of rules contractors need to abide by when filling in their tax returns. This is where the Construction Industry Scheme (CIS) comes into play.

The scheme helps set out the kind of records contractors should keep, the deductions they have to make and returns they have to file.

Here, we look at the scheme and the tax processes surrounding it.


Compliance Is Simple – CIS explained

The CIS sets out the deductions contractors must make from sub-contractors' pay to pass on to HMRC. These deductions count as advance payments towards a subcontractor's tax and NI contributions.

Both contractors and sub-contractors must register for CIS. However, the deductions from their pay packets are taken at a higher rate if they aren't registered.

As its name suggests the scheme covers construction work to permanent or temporary buildings or structures, as well as roads and bridges. Under the purposes of the scheme other work is also classed as construction, including demolition, preparation of a site, alterations, repairs, decorating and installing utility systems, such as lighting, power, water and ventilation.

There are also exceptions. Certain jobs don't require registration including surveying, carpet fitting, delivering materials and making materials used in construction, such as plant and machinery.

The returns process

There are several steps contractors have to take before paying deductions to HMRC and filing returns. New subcontractors must be 'verified' with HMRC – to establish if they are registered under CIS, what rate of deduction should be used and if you can pay them without taking anything from their pay packet.

Subcontractors you've worked with in the past may still need verification. If you've not included them in a CIS return for the current or last two tax years, they are classed as new.

There are varying amounts of deduction rates and HMRC will tell you how much you should be taking from a subcontractor's pay. Those registered under CIS have 20% deducted, unregistered workers are subject to 30% and nothing is deducted for those with 'gross payment' status.

Materials and equipment the subcontractor has paid for must be taken into account when making a deduction – the CIS percentage rate should be the final amount you deduct, after these items have been accounted for.

HMRC must be informed every month you make a payment to a subcontractor, via a return. These can be made using the online HMRC CIS service or via commercial CIS software.

It is important to ensure your monthly returns are accurate as HMRC can issue penalties of up to £3,000 if you give the wrong employment status for a subcontractor.

Returns don't have to be filed in a month when you haven't employed a subcontractor. However, it is advisable to file a nil return to avoid the process of appealing the £100 penalty for non submission.

How we can help

CIS returns are an important aspect of the construction industry but can be time consuming and involve extra work. As part of our bookkeeping services we are able to take care of and complete monthly CIS returns – giving you the peace of mind that your paperwork is being filed on time, every time.

To find out more about our bookkeeping services, and how we can support your CIS requirements, call our team on 01892 559480 or complete our contact form.  

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