This is a question I was recently asked and so I thought I’d better cover it in this week’s blog.
So firstly this only applies to individuals, businesses and companies within the Construction Industry and mainly covers: construction work to buildings, site preparation, decorating and refurbishment. So if your work doesn’t fall within these categories then unfortunately this scheme doesn’t apply to you. Also this is an optional scheme, it is not a legal requirement to do this…Just thought I’d get that out the way early – slight ‘disclaimer’ there!
Ok here we go, so the Construction Industry Scheme (CIS) is a simple system set up by the government to help reduce the amount of Tax paid by companies and individuals within the construction industry and simplifies payment of subcontractors’ Tax and National Insurance Contributions.
How this works is simple, if you are a contractor and/or a subcontractor you must first sign up to the scheme here:
Contractor Registration – https://www.gov.uk/what-you-must-do-as-a-cis-contractor/how-to-register
Subcontractor Registration – https://www.gov.uk/what-you-must-do-as-a-cis-subcontractor/how-to-register
Once registered, all that happens is that the contractor will deduct the subcontractor’s National Insurance Contribution and Tax directly from their payment for any work. This then counts as ‘advanced payments’ towards the subcontractor’s Tax and makes their end of year return less of a lump sum.
If either the contractor or subcontractor isn’t registered for the scheme then you unfortunately cannot use this system and will pay a higher rate of deductions at year-end.
So why do this scheme? Well as I mentioned above, on this scheme these deductions are at a reduced amount – if you’re not registered for this scheme then deductions are taken at a higher rate! So if you hire a lot of subcontractors this saves money for both the contractor and subcontractor. Also it just helps reduce that big end of year sum that you sometimes have to pay for your tax return, since these deductions come straight out of each payment to save fuss at the end of year.
I hope that helps and if you want anymore information just contact me at email@example.com
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