What is CIS

What is CIS and why does it matter for your construction business? CIS stands for the Construction Industry Scheme, a HMRC tax scheme that affects contractors and subcontractors in the UK construction industry. Understanding it is crucial to avoid penalties and ensure compliance.

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How the Construction Industry Scheme Works

CIS is designed to combat tax evasion in the construction industry by requiring contractors to deduct money from subcontractors' payments. These deductions are then paid directly to HMRC on behalf of the subcontractor, acting as advance payments towards their tax and National Insurance.

Contractors must register with HMRC for CIS, and subcontractors can choose to register to reduce the deduction rate. The scheme applies to most construction work, including building, alterations, repairs, and demolition across the UK.

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Key CIS Requirements and Rules

HMRC has specific rules for CIS that both contractors and subcontractors must follow. Here are the essential points you need to know:

Contractors must register with HMRC for CIS if they pay subcontractors for construction work.
Subcontractors can register to reduce deduction rates from 30% to 20%.
Deduction rates: 20% for registered subcontractors, 30% for unregistered, 0% for gross payment status.
Monthly CIS returns are due by the 19th of each month for the previous tax month.
Late filing penalties apply, starting at £100 for returns one day late.
Payment statements must be provided to subcontractors detailing gross amount, deductions, and net payment.
CIS covers construction activities like building, repairs, installations, and demolition.
Verification of subcontractors with HMRC is required before the first payment.
Gross payment status allows subcontractors to receive payments without deductions if they meet turnover and compliance tests.
Records must be kept for at least three years for potential HMRC inspections.

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Common CIS Mistakes and When to Get Help

A common mistake is not registering for CIS when required, leading to higher deduction rates or penalties. Contractors often forget to verify subcontractors or submit returns late, which can trigger HMRC investigations. Subcontractors might miss out on registering for gross payment status, affecting their cash flow.

Keep accurate records of all payments and deductions. If your CIS obligations are complex or you're struggling with compliance, it's wise to seek professional advice. Accountants like DG Accountancy Ltd in Torquay can help ensure you meet all requirements and avoid costly errors with their responsive support.

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You can reach us by phone, email, or using the contact form below. We'll get back to you quickly to discuss how we can help with compliance, tax planning, or business growth.

Initial chats are always free and without obligation. We'll listen to your goals, explain our fixed monthly packages, and show you how we can save you tax and improve cash flow. It's all about making your financial life easier.

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DG Accountancy Ltd provides fixed monthly accountancy services for small businesses and contractors in Torquay and across the UK. Contact us for reliable support to help your business thrive.