CIS Accountant

Don’t give yourself a headache trying to figure out which CIS deduction rates apply to which subbies or how to manage your CIS payments. Leave it to the CIS experts at Empowered by Cloud.
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Why work with CIS Accountants?

As if managing planning permissions and building regs weren’t complicated enough for construction companies to deal with, you then have all the extra tax rules (such as CIS) to think about.

When you work with CIS accountants, you remove the headache. You can get on with running your business, knowing all CIS payments are being handled correctly. You’re happy, your subbies are happy, and HMRC is happy.

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What is CIS?

The Construction Industry Scheme (CIS) is a government scheme designed to reduce tax fraud. Under CIS, contractors deduct money from any payments made to subcontractors. They then pass this money on to HMRC as advance payments toward the subcontractor’s income tax and national insurance contributions.

Who is included in the Construction Industry Scheme (CIS)?

Contractors must register for CIS if they pay subcontractors to do construction work. You must also register as a contractor if your business does not do construction work but has spent more than £3 million on construction in the 12 months since you made your first payment.

Contractors registered under the scheme must verify CIS registration or payment status of sub-contractors, make deductions to pay HMRC, submit monthly CIS tax returns and issue monthly CIS statements to sub-contractors.

Subcontractors do not have to register, but if they don’t, the deductions made will be at a higher rate.

Subcontractors can also apply for gross payment status. If they qualify, no CIS deductions are made by contractors.

Why was CIS introduced?

Until the early 1970s, most subcontractor payments were made in cash. Unfortunately, many subcontractors weren’t registered as self-employed and often “forgot” to pay tax on their income.  

HMRC (then known as Inland Revenue) decided to combat the problem by introducing the Construction Industry Scheme.

Initially, the scheme involved subcontractors being given vouchers, but criminal groups soon figured out how to forge vouchers. Voucher fraud was so rife that by the 90s, Inland Revenue was losing out on an estimated £50 million a year.

That led to the introduction of CIS cards and the process of contractors deducting tax at the source.

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What is the purpose of CIS?

There are two main aims of CIS. One is to minimise tax evasion by getting contractors to collect the tax on behalf of HMRC.

The other aim is to protect workers. Employees are entitled to benefits such as holiday pay, sick pay, pensions and so on. If a worker is self-employed, they don’t automatically get the same protections.

CIS helps HMRC spot instances where contractors may be trying to avoid putting employees on their payroll by disguising them as self-employed subcontractors.

What is the difference between CIS and PAYE?

PAYE (pay as you earn) is for company employees, whereas CIS relates to self-employed subcontractors.

When you have an employee on PAYE, they will have a tax code that indicates how much tax they should pay. You deduct income tax and NI contributions from their salary and pass them on to HMRC. You’ll issue them with payslips each month and a P60 at the end of the year.

With CIS, you pay your subcontractors the agreed amount, but you deduct a percentage. In most cases, this is 20%.

Each tax year, subcontractors will have to complete their self-assessment tax returns. If they have overpaid tax (which is common), they can make a refund claim. Most subcontractors not registered for gross payment status receive CIS tax refunds.

Who pays CIS to HMRC?

Contractors make CIS deductions before paying their subcontractors. They then pay this money to HMRC each month. CIS payments are made in the same way as PAYE and NIC payments. If someone else manages your payroll, they will tell you how much you need to pay each month.

Can CIS be avoided?

CIS can’t be avoided, but subcontractors can apply for gross payment status, which means the contractor doesn’t have to make CIS deductions.

Subcontractors must meet certain criteria to qualify for gross payments. They will then have to make their own tax and NI payments to HMRC once they have completed their self-assessment tax return.

Some construction firms avoid dealing with CIS by using a payroll or umbrella company. These third-party companies sit between you and the subcontractor in the contractual chain.

They verify your subcontractors, calculate CIS deductions, pay subcontractors, issue payment and deduction statements, and make CIS payments to HMRC. They then issue the contractor with one invoice covering all subcontractors.

Although this can be a good option for some firms, it has its downsides. If you use one of these third parties, you’ll have to pay VAT on top of your weekly wage bill and make the CIS payments upfront, which can impact your cash flow.

If you are unsure how to manage CIS, speak to a CIS accountant like Empowered by Cloud.

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What are the common problems construction companies face with CIS?

CIS arrears can impact a business just as much as unpaid VAT liabilities. When you make CIS deductions, you are collecting money that belongs to HMRC. And in the exact same way that the VAT you collect doesn’t belong to you, CIS money doesn’t belong to you either.

Of course, that doesn’t stop many firms using the money set aside for VAT and CIS as a buffer while they wait for payments to come in. Not necessarily a problem until those payments don’t come in, and you start attracting late fees and penalties.

Empowered by Cloud specialise in working with construction firms. We help you get control of your cash flow so you don’t get in hot water with HMRC.

What is the best CIS software?

Several commercial software suppliers have been approved by HMRC, but we recommend Xero.

Not only can Xero help you manage CIS calculations and returns, it has many other great features too. It is the best accounting software for construction businesses and trades.

We’re experts in Xero and specialists in construction accounting. We can get you up and running on Xero so you’ll feel fully confident using it for CIS returns and much more.

Why choose Empowered by Cloud for your accounting services?

The construction industry has unique financial challenges, and CIS is just one of many.

Generalist chartered accountants can ensure you stay on the right side of HMRC, but they won’t have the specialist knowledge we have.

We only work with construction businesses and trades, meaning we know the construction industry inside out. We understand the complexities of CIS, we know where you can make tax savings, and we’ll ensure you have complete control over your cash flow.

But that’s not all. We aren’t here just to complete your CIS tax return each month. We’re here to help you grow your business sustainably and profitably, giving you expert advice on how and when to invest so you can achieve your business goals.

So if you’re looking for chartered certified accountants that offer more than just the basic tax services and accountancy services, get in touch.

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Contact Empowered by Cloud today

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