What is CIS Tax ?
Under CIS (Construction Industry Scheme), contractors have to deduct money from a subcontractor's payments as tax and transfer it to HM Revenue and Customs (HMRC). The deductions count as advances payments to the subcontractor's tax and National Insurance.
Contractors have to get themselves registered with the scheme to use it. Whereas subcontractors choose not to register, but deductions are taken from their payments at a higher rate if they are not registered.
CIS Covered Work:
• A permanent or temporary building or structure
• Civil engineering works such as roads and bridges
For cis purposes, construction work includes:
• Prepare the site, for example, lay the foundations and facilitate access works.
• Demolition and dismantling
• Reforms, repairs and decoration
• Installation of heating, lighting, energy, water and ventilation systems.
• Cleaning of the interior of the buildings after the works.
The CIS, known as Construction Industry Plan, is an HMRC scheme is for you if you work for a contractor in the construction industry, not as an employee but as a self-employed. The CIS rules mean that the contractor must generally withhold taxes on your payments to you, at 20% if you are "registered" or at 30% if you are not. This is different from other freelancers, who receive their gross payments, which means no taxes are deducted. The amount of taxes the contractor must deduct depends on whether they register as a subcontractor with the CIS.
There are two components of the Construction Industry Plan (CIS), one is a "contractor" and the other is a "subcontractor". If you hire other freelancers who do construction work, then you are a contractor and must register with the CIS. There is more information on how to register with the CIS as a contractor on internet.
As a low-income self-employed person, you are more likely to be hired or hired by a contractor to do some construction work. This will mean that you are a subcontractor. If you are a subcontractor, you can choose whether or not you want to register with the CIS.
If you can contact us, we can explain how you can register with the CIS as a subcontractor and what information you will need to register. There are different methods depending on whether you have already registered as a self-employed person or not and whether you are self-employed as a sole trader or through a different business entity such as a partnership or limited partnership.
Who Needs To Register for CIS?
Not everyone who works in the construction industry is self-employed. If you work in the construction industry, you should view your employment situation the same as everyone else. It is important to be clear that, although a contractor is withholding taxes on the payments that have been made (and you will receive payroll receipts), you are not being treated as an employee and, therefore, you will not have any of the work rights that usually go in addition to being an employee.
The CIS covers more than what is normally considered construction and civil engineering work, for example, it includes demolition work, site cleaning, repairs and decoration and installation of electrical systems. Note that if you provide construction industry type services directly to an owner (i.e. not a contractor), this would not be included in the CIS and the customer would pay you gross on the production of your invoice.
Get Yourself Registered with HMRC: You have to register online via HMRC. The process depends upon whether you’re self-employed, a partnership company or not self-employed - you should click on the option that applies to you in the online registration form.
Get Your Unique Taxpayer Reference Number: HMRC will send you, your Unique Taxpayer Reference Number (or UTRN) in a letter after you have registered. Follow the instructions in the letter on how to set up your Government Gateway Account (GGA).
The Activation Code for Your Government Gateway Account: After the above process is complete, you will receive another letter from HMRC in the post with your activation code. You will need this code to complete the process of setting-up your account. You have to do it within the given time the code has an expiry date.
Complete Your Account Setup: Once your Government Gateway Account is complete, you'll be able to log in and submit your tax returns. According to HMRC this whole process can take up to 20 working days. So time management is as important as anything else so that you don’t miss the deadline.
Note that the CIS record is in addition to the self-assessment record, not in place of the self-employment record. This means that for those new to self-employment and CIS, there are two separate records. However, both can be done at the same time.
It is also possible to be a contractor and subcontractor at the same time. For example, if Mr. ABC, an electrician, is hired by a local builder to do some work, then his work would go to the CIS. If he outsourced some elements of his work himself to his friend, electrician DEF, because he wanted to get the job done faster, then he must also register as a contractor and pay Jenny under the CIS.
If you decide not to register with the CIS, the contractor must deduct and retain 30% of the amount of your invoices for your work (but not the amounts invoiced for direct expenses such as materials or rental of tools, etc.). So you will only get paid 70%.
How to Pay Taxes Paid Under CIS?
According to the CIS, the contractors must check whether workers are “registered” with HMRC. To do this, the borrower will need his unique taxpayer reference (UTR) and his national insurance number.
As explained above, if you are a subcontractor, the payments you receive under the CIS may be subject to tax deductions: 20% for registered subcontractors; 30% for subcontractors not registered in the system. If you are a registered subcontractor and approved for gross salary status, no deduction should be made under the CIS. Deductions by the contractor will be paid to HMRC as advances on your invoice for personal income tax and national insurance contributions (NIC) for the applicable tax year.
If you are an independent subcontractor, you must complete a self-assessment declaration. The only time you won't need to complete an income tax return is if you qualify for a full business allowance claim and decide it is beneficial to claim it (hence your total income d (business before self-employment expenses, miscellaneous and casual income) income from expenses is less than £ 1000 in tax year).
CIS Tax Returns
When you complete your tax return, you include your total sales income, so the amount you charged, not the amount you received after deducting the CIS. This is the case even if your invoice includes amounts for things like supplies, tool rental, etc. Your income tax return must also include any business expenses that must be deducted from your self-employment income to arrive at your self-employment income.
The amount of tax that was withheld under the CIS must be entered in box 38 of page SES2 of independent pages (short) y in box 81 of page SEF4 of independent pages (complete). This means that when your taxes and NIC are calculated, any advances that have been made through CIS deductions will be taken into account.
What is CIS Tax ?
How to Pay CIS Tax
CIS TAX RETURNS
Who can Help For Your CIS Taxes?
Completing and submitting tax returns can be complex and overwhelming. You may not consider hiring a professional tax accountant to help you. While you may be tempted to turn a blind eye to such things as it will mean some savings in the first place.
However if HMRC checks your tax returns and determines that your returns do not have supporting documents or your tax are underpaid etc. , it is you and not the accountant who will be accountable for the tax. In such cases, you may face penalties from HMRC.
Pro Tax Accountant offers you complete and comprehensive services to manage all your CIS taxes. Contact us in this regard.