In the UK, the Construction Industry Scheme (CIS) is used to deduct tax from payments to subcontractors in the construction industry. Understanding the CIS return is important for contractors and subcontractors to ensure compliance and maximise potential tax refunds.
Whether you are new to the construction industry or managing multiple subcontractors, this blog covers CIS returns, their filing process, and due dates.
What is CIS Return?
Contractors must provide a monthly report to HM Revenue and Customs (HMRC), called the CIS (Construction Industry Scheme) return. This report provides detailed information on payments made to subcontractors under CIS. Conversely, subcontractors file an annual self-assessment tax return for any overcharge, which is refunded if required.
Typically, registered subcontractors are taxed at 20%, while unregistered subcontractors are taxed at 30%. This instalment adds to the annual tax refunding charges. Subcontractors approved for gross payment status receive payments without deductions.
Who Should Have to Submit a CIS Return?
Construction Industry Scheme authorised contractors are accountable to submit CIS returns. If you are paying the subcontractors for building work, HM Revenue and Customs counts you as contractors even if construction is not your key business. You are categorised as a contractor if:
You are a self-employed construction worker
A subcontractor who collects payments using the CIS is eligible for completing the assessment tax return. Unfortunately, you must pay taxes at a rate above 30% if you are not registered for the CIS.
You have a construction business that pays subcontractors
During any 12 months, you have spent £3 million on construction, although you are not directly involved in the building industry at all times. For instance, building firms, real estate developers, or the bigger businesses managing renovation projects.
A contractor’s duty is to submit the CIS returns; it’s not the responsibility of subcontractors. If you are unsure whether you are in the contractor category, it is best to check with HMRC or a trusted tax expert.
When to Submit CIS Return?
Contractors have to submit CIS till the 19th of every month, considering all the details of the earlier tax system. On the 6th of each month, tax starts and ends on the 5th of the upcoming month. HM Revenue and Customs is precise with its deadlines; it is better to submit returns before facing any challenging situation. On the other hand, subcontractors have a deadline to submit a self-assessment tax return by 31st January.
Information Required for a CIS Return
Each CIS return must include accurate data on payments and deductions made to subcontractors for the tax month. Providing accurate information is essential; any errors result in penalties for you and your subcontractors. You have to include the following:
Payment Amounts
This involves providing the total amount paid to the subcontractors before deductions.
Verification Numbers
Some subcontractors are not registered for gross payments. HMRC issues a unique verification number to these subcontractors during their first check, and you must include this number.
Subcontractor Details
The details include the subcontractor’s name, UTR (Unique Taxpayer Reference), and either their company registration number or national insurance number.
CIS Deductions
The tax money deducted is based on the applicable tax rate (20% or 30%) and 0% if gross paid.
Nil Return Status
Even if the contractors have not waged any subcontractors in any month, they have to file a nil return.
Keeping a correct record of these details for the whole month makes the filing very easy.
Common CIS Return Mistakes
It’s not good to make some common mistakes on the Construction Industry Scheme return. Mistakes occur by chance, but in many cases, they are easy to fix. Popular human errors involve:
- Miscalculation in the expenses
- Forgetting the deadline
- Failing to verify subcontractors correctly
- Losing all the account records that include deductions and payments
There is an option to change the data by signing back into the CIS online service if you have entered any incorrect information. But if you don’t succeed in amending, you may have to face problems with HM Revenue and Customs.
Penalties on Late CIS Returns
If you fail to submit the Construction Industry Scheme, take a look at these penalties:
- You have to pay £100 for a one-day delay.
- £200 for a two-month delay.
- £300 or 5% for a six-month delay
- Further £300 or 5% for covering 12 months or more
HMRC adds penalties on a daily basis in some cases. These fines are added rapidly, so check these before. A late nil return can result in a fine.
Conclusion
Understanding the correct timing for submitting CIS is key to ensuring compliance with HMRC rules. Contractors need to submit accurate monthly returns by the 19th, while subcontractors should report CIS income via self-assessment. Filing on time, common mistakes, and when to give the CIS return report can save you from major, expensive penalties. Where uncertainty exists, seeking professional accountancy advice can help protect your business from unnecessary costs.
