CIS, the Construction Industry Scheme, requires registration of anyone who works in the construction industry, whether that be that a sole trader or a company.

This registration also includes non-construction businesses that regularly carry out or commission construction work on their own premises or investment properties if that work has exceeded £3 million within the previous 12-month period. Smaller, non-construction businesses are excluded from the scheme as are private households except where a builder working in a private property then subcontracts work to other tradesmen. In that situation, the builder must register for CIS even though the works are undertaken on a private home because the contract is between the two businesses.

In can be difficult to determine whether to register or not as it may be difficult to decide whether the work is 'construction' in nature but if there is any doubt, registration should be made. Where various types of works are undertaken, some of which would be outside CIS (e.g. plumbing work) and some inside CIS (e.g. painting and decorating), then all of the works undertaken or services provided under that contract will be within CIS.

Under CIS, contractors deduct money from a subcontractor's payments and pass it to HM Revenue and Customs (HMRC) but how much should be deducted?

CIS Deduction Rates

There are 2 rates of deduction with CIS:

• The standard rate of 20% - applied to payments made to those subcontractors that are registered and been 'verified' with HMRC;
• The higher rate of 30% - applied to payments made to subcontractors with non-verified gross payment status can be claimed under strict conditions including complying with tax obligations and meeting turnover limits (e.g. £30,000 for sole traders).

Interaction with PAYE

When a company contractor pays CIS and PAYE deductions for employed workers, all deductions are combined and made as one payment. If a company suffers CIS deductions then such deductions can be offset and the balance paid.

If a company has no employees, there can be no PAYE offset and no automatic method of reclaiming the CIS suffered; the company therefore needs to submit a formal claim for the refund which can be done online. The CIS deductions suffered will then be refunded directly into the company bank account or the claim can request deduction from the corporation tax or VAT liabilities.

HMRC are notoriously slow in making these refunds and it is not unusual for a company to be required to pay their corporation tax and then receive a refund of the CIS suffered at a later date. HMRC system will check for any unpaid liabilities or penalties before processing the claim and these will be deducted from the repayment.

Unfortunately, this offset system is not available to sole trader and partnership subcontractors who can only offset the CIS deductions against personal self-assessment liabilities.

What Are The Payment Deadlines & Penalties

The submission date for monthly returns is 14 days after the 5th of the month end. If a CIS return is going to be late an application can be made for an extension. This application must be made before the submission date and the reason given for the late submission. If the reason can be classified as a  'reasonable excuse', penalties may not be applied.

If a penalty is received, these are the rates you can expect to pay:

• Up to one month late, £100
• Up to two months late, £200
• Up to six months late, £200 plus £300 (or 5% of the deduction whichever is the greater amount)
• Up to 12 months late, the same penalty as for six months late plus another £300 (or 5% of the deductions whichever is the greater amount)

For more information on CIS, get in touch.