Maximising the benefits of CIS for construction businesses

Sep 26, 2023

Today, we’re diving deep into the riveting world of Construction Industry Scheme (CIS) — a hot topic for all our friends in the trade.

The aim of today’s article? To help you maximise the benefits and make the most out of this scheme. So, let’s put on our hard hats and get cracking.

What is CIS?

CIS is an HMRC scheme designed especially for contractors and subcontractors working in the construction industry.

Under the scheme, contractors must deduct tax from subcontractors’ payments, which are then passed over to HMRC. It’s all about ensuring that subcontractors are paying their fair share of tax and National Insurance.

The benefits: more than just tax and National Insurance

The CIS isn’t just about keeping the taxman happy – it’s also a way to streamline your business processes, improve efficiency and enhance compliance.

Here are some of the benefits of adhering to CIS in your construction business:

  • Risk mitigation. The scheme lowers the risk of falling foul of the taxman by ensuring that subcontractors are compliant with their tax obligations. It’s all about staying in HMRC’s good books!
  • Cashflow enhancement. Regularising payments and deductions helps in maintaining a steady and predictable cash flow, allowing businesses to plan and allocate resources more efficiently. For example, contractors make a 20% deduction from the subcontractor’s invoice, instead of the 30% HMRC would deduct for unregistered subcontractors.
  • Robust relationships. Working within the CIS fosters trust between contractors and subcontractors. This can help forge stronger, more dependable partnerships, leading to smoother project executions. It’s all about building strong foundations (pun intended).
  • Spread the cost of tax and National Insurance across the year. If you’re a subcontractor and work for a contractor, your monthly deductions will count towards your tax and National Insurance bill — so there’ll be no unwanted surprises come year end.

How do I maximise these benefits?

Now that we have our basics sorted, let’s chat about how to use this scheme to your advantage:

  • Stay compliant. Compliance is key. Regularly review your contracts and employment status to ensure you’re always on the right side of the legislation. It’s also a good idea to keep a close eye on any new measures that could affect you in future.
  • Claim deductions. Subcontractors, don’t forget to offset your CIS deductions against your tax bill! Claim back what you deserve and enhance your financial health.
  • Embrace the digital age. Utilising accounting software can make your CIS returns a walk in the park. It’s a digital world, and using tech can save you precious time and help you avoid those pesky human errors.
  • Seek professional advice. A seasoned accountant can be your best friend in navigating the intricate web of CIS. As experienced accountants for construction businesses, we would be thrilled to assist you in maximising your benefits and maintaining compliance.

Potential pitfalls

Of course, life is never all sunshine and rainbows and neither is CIS. Here are some pitfalls to avoid:

  • Late returns. Filing late CIS returns can lead to fines and penalties — a definite no-no. Staying organised and punctual can save you a world of trouble.
  • Incorrect details. Ensure all the information provided to HMRC is accurate and up-to-date to avoid any discrepancies and potential fines.
  • Non-compliance. Failing to follow the CIS rules can result in severe consequences, including substantial penalties. Staying compliant means staying smart.

Final thoughts

By meeting compliance requirements, embracing technology, building robust relationships, and seeking professional advice when you’re unsure, your construction business can maximise the benefits of CIS.

The CIS isn’t just a bureaucratic hoop to jump through — it’s an opportunity to enhance the efficiency and profitability of your construction business.

Our team of accounting maestros are always here to lend a helping hand and guide you through the labyrinth of the CIS — so why not give us a ring? Let’s start building a brighter, more compliant future together.

Here’s to maximising the benefits of the CIS for your construction business!

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