CIS is a HMRC scheme that is obligatory for all companies and individuals trading within the construction industry.
You are either required to register as a contractor to pay your workers, or a sub-contractor to be paid.
As a contractor you need to submit a CMR (Contractor’s Monthly Return) each month, to declare payments made to sub-contractors to HMRC.
The return covers the period from the 6th of one month to the 5th of the next. It has to be submitted by the 19th of the month ending on the 5th together with the tax payment:
E.G. Period: 6th April 2016 – 5th May 2016 – submission and payment deadline = 19th May 2016.
Before you can pay new sub-contractors, you need to verify them with HMRC.
This is really important as verification will indicate what % of tax should be deducted from the gross pay.
The Tax Rate
This could be:
- 20% – where the sub-contractor is registered for standard rate tax deduction
- 30% – where the sub-contractor is not registered within CIS and needs to register
- Gross Payments – where the sub-contractor is registered to received Gross Payments, without any CIS tax deduction
How to verify a sub-contractor
You will need:
- Their name or trading name
- Their UTR (Unique Taxpayer Reference)
- Their NI number
How to verify a company
You will need:
- Name of the company
- CRN (Company Registration Number)
- Company UTR
Verification has to be done through the HMRC CIS online gateway. You need to register with HMRC first to use this service.
As a subcontractor you need to register for either gross or standard payment.
Failure to register will incur a 30% CIS tax deduction.
The business won’t be allowed to reclaim any overpaid CIS until the sub-contractor is registered to be paid.