Avoiding obstacles with the Construction Industry Scheme
Under the Construction Industry Scheme (CIS), contractors take money from a subcontractor’s payments and send it to HM Revenue and Customs (HMRC).
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Some key terms include:
Construction operations
These are the services the scheme relates to, such as work to permanent or temporary buildings, structures, or associated land.
Construction contract
This is a legal agreement, where one person provides construction services to another.
Contract payment
This refers to fees paid by a contractor to a subcontractor, or other party, under a construction contract.
The payments can be in the form of cash, cheque, or credit. Some payments are excluded from this, such as:
- Payments made under a contract of employment under the labour ‘agency’ obligations
- Payments obtained for the services of an individual, and where the off-payroll working rules apply.
Deduction
This is the sum of tax that a contractor must pay to HMRC from a contract payment.
The deduction will either be at the standard rate of 20 per cent or at the higher rate of 30 per cent.
The scope of the CIS
HMRC handle overseas contractors and subcontractors in the same way as their UK counterparts.
If a construction project is carried out in the UK, the CIS will possibly need to be utilised.
Common pitfalls
Some of the most common issues faced in relation to the CIS include but are not limited to:
- Not registering for and applying the CIS at the right time
- Not recognising when the contractor threshold is surpassed
- Failing to notice that a subcontractor is conducting construction operations
- Not using the correct CIS tax deduction rate
- Not considering employment status, employment mediators and ‘IR35’ requirements.
What must you do?
Subcontractors with gross payment status must stay compliant in order not to lose that status, which will ultimately have a severe impact on the business.
Additionally, errors by contractors can be expensive, as they can be held liable for CIS tax under deducted contract payments to subcontractors.
HMRC can reclaim that CIS tax for up to six years, along with interest charges and penalties.
It’s vital that you seek professional help and advice when dealing with matters such as the above. Contact us today.
