Your business will need to register as CIS Contractor if;

• You pay subcontractors to do subcontractor work.
• Your business does not do construction work but you usually spend more than £1 million a year on construction.

HMRC list certain rules for registering as a CIS Contractor;

1. Before taking on your first Subcontractor, you must register with HMRC.
2. Check the employment status is correct and consider whether they should be employed instead.
3. Check your subcontractor is registered as a CIS Subcontractor with HMRC (Verify)
4. You will have to make the correct CIS deductions from payments made to subcontractors.
5. File monthly returns.
   1. The period ends of the 5^th of each month
   2. The Return is due by the 19^th of each month – if the return is late, HMRC will issue late filing penalties.
   3. The return must include the details of the subcontractor, payments etc.
6. Notify HMRC if there are any changes to your business.

To check who is covered by CIS, you can view HMRC guidance here.

MAKING THE CORRECT DEDCUTIONS

When paying a CIS Subcontractor, you will need to make deductions at one of the rates below;

• 20% for registered subcontractors.
• 30% for unregistered subcontractors.
• 0% if the subcontractor has gross payment status.

To calculate the total amount liable for deduction, you will need to deduct VAT and materials (including equipment, plant hire etc.).

For example, your subcontractor presents you with a labour only invoice for £500.00 plus VAT – £600.00 gross. To calculate the CIS deduction, you would take the £500.00 net and calculate 20% of £500.00 = £100.00 CIS deducted.

Therefore, when making payment to the subcontractor you would pay him £500.00 – calculated as follows. £400.00 (after CIS deducted) and £100.00 VAT. The CIS deducted of £100.00 will be paid to HMRC.

Adding materials in to the equation;

You subcontractor, who is not VAT registered, presents you with an invoice for £1,000.00; broken down as £800.00 for labour and £200.00 for materials.  To calculate the CIS deduction, you only consider the labour element – so £800.00 x 20% = £160.00.  Therefore, you would pay your subcontractor £840.00 (£1,000.00 minus £160.00).

PAYING HMRC

Any CIS payable to HMRC will be due either monthly or quarterly (if your average bill is less than £1,500.00 month on average.

Payment is due on the 22nd of the month (if paid electronically) and by the 22nd of April, July, October and January if quarterly.

If you are a Limited Company, you can offset any CIS suffered by your company against your bill.

DMO Accountants can register your business as a CIS Contractor with HMRC. Why not book in a meeting with us to see how we can assist you and help you get everything in order in the most efficient way – click here to book.