In this article, we will focus on the process of making Construction Industry Scheme (CIS) payments to HM Revenue & Customs (HMRC) in the United Kingdom. We will outline the different payment options available, including online payments, phone payments, Direct Debit, CHAPS payment, and BACS payment. Additionally, we will emphasise the importance of keeping accurate records of your CIS payments and explain how these payments can impact your Self Assessment Tax Return. Whether you are a subcontractor or a contractor in the construction industry, this article provides a comprehensive guide to help you stay compliant with CIS regulations and make payments to HMRC efficiently and effectively.
How to verify subcontractors under CIS?
Before making any payments to subcontractors, contractors must verify their subcontractors' CIS status. Subcontractors can be verified by applying for a Unique Taxpayer Reference (UTR) and providing it to the contractor.
Ask the subcontractor to provide their Unique Taxpayer Reference (UTR) number and CIS tax deduction certificate.
Check the subcontractor's details on the HMRC online verification service to confirm that they are registered for CIS and their details are correct.
Retain records of the verification process, including the date of verification and the subcontractor's details.
Notify HMRC if the subcontractor's details change or if you have any concerns about their tax status.
Deduct the appropriate amount of tax from payments made to the subcontractor and submit the deductions to HMRC.
What are the approapriate tax deductions under CIS?
Contractors must deduct tax from the payments they make to subcontractors at the appropriate rate. The tax deduction rate depends on the subcontractor's CIS status and whether they are registered for gross or net payments.
The following are the appropriate tax deduction rates for subcontractors under CIS:
Verified subcontractors: For subcontractors who are verified with HMRC, the tax deduction rate is 20% for payments for labour only, and 0% for materials only.
Unverified subcontractors: For subcontractors who are not verified with HMRC, the tax deduction rate is 30%.
To make the tax deductions for your subcontractors, you need to follow these steps:
Calculate the gross payment you need to make to the subcontractor.
Deduct the appropriate percentage of tax from the gross payment, based on the subcontractor's tax status.
Pay the deducted tax to HMRC, either monthly or quarterly, depending on the amount of tax you need to pay.
Provide the subcontractor with a statement showing the amount of tax deducted, the gross payment, and the net payment made.
Retain records of the tax deductions and payments for at least 3 years in case of an HMRC inspection.
It's important to ensure that you are making the correct tax deductions from payments to subcontractors, as failure to comply with the CIS regulations could result in penalties from HMRC.
How to make a CIS payment to HMRC?
There are several ways to make a Construction Industry Scheme (CIS) payment to HM Revenue & Customs (HMRC) in the United Kingdom:
Online: You can make CIS payments online using the Government Gateway, which is a secure online service for businesses to access government services. You will need to register for an account on the Government Gateway and then follow the instructions to make a CIS payment.
By phone: You can make CIS payments over the phone using the HMRC's Automated Payment Line. The phone number and payment instructions can be found on the HMRC website.
By Direct Debit: You can set up a Direct Debit to make regular CIS payments to HMRC. You can arrange this by phone or online through the Government Gateway.
By CHAPS payment: This is a same-day electronic payment service that can be made through your bank. You will need to provide your bank with the payment details, which can be found on the HMRC website.
By Bacs payment: This is an electronic payment service that takes 3 working days to reach HMRC. You will need to provide your bank with the payment details, which can be found on the HMRC website.
Regardless of the method you choose, it's important to keep records of the payments you make to HMRC, including the date of payment, the amount, and the payment reference. This will help you to reconcile your records and ensure that your payments are up to date.
How CIS affect my Self Assessment Tax Return?
The Construction Industry Scheme (CIS) can have an impact on your Self Assessment Tax Return if you are a subcontractor in the construction industry. CIS requires contractors to deduct a percentage of the gross payment they make to subcontractors for construction work and pay this amount to HM Revenue & Customs (HMRC) as tax.
Here's how CIS can affect your Self Assessment Tax Return:
- Income from construction work: If you receive payments for construction work as a subcontractor, the payments will be subject to CIS deductions. You need to include the gross payment you receive for construction work, minus any CIS deductions, as income on your Self Assessment Tax Return.
- Claiming CIS deductions back: If you are a verified subcontractor, you can claim back the CIS deductions that have been made from your payments by completing a Self Assessment Tax Return. The deductions will be treated as tax credits and offset against any other tax that you owe.
- Keeping records: You need to keep records of all payments received for construction work, including the amount of CIS deductions made, in order to accurately complete your Self Assessment Tax Return.
- Registering for Self Assessment: If you are a subcontractor in the construction industry and receive payments for construction work, you may need to register for Self Assessment and complete a Tax Return each year.
By ensuring that you include the correct information on your Self Assessment Tax Return and claim back any CIS deductions that are due to you, you can ensure that you are paying the correct amount of tax. If you have any doubts or concerns, you can seek advice from an accountant or tax specialist.
Overall, tax under the CIS is paid through a combination of deductions made by contractors and self assessment tax returns completed by subcontractors. It's important for contractors and subcontractors to understand their obligations under the CIS and to comply with the rules and requirements of the scheme. Failure to do so can result in penalties and fines.
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