The Construction Industry Scheme (CIS) is designed to reduce tax evasion in the construction sector, ensuring that subcontractors pay their fair share of tax and National Insurance contributions (NICs).
If you’re a contractor, this means that each month you’re obligated to submit a return outlining the payments you make to subcontractors and the deductions you withheld.
These returns are more than just paperwork; they are a legal requirement. Failure to meet the deadline can result in financial penalties, escalating if multiple deadlines are missed.
But don’t worry — here’s how to deal with CIS and stay on the right side of HMRC.
Know your deadlines
Knowing when to file your CIS returns is essential so you don’t miss the deadline and pick up a penalty. The tax month for the scheme runs from the 6th of one month to the 5th of the next. Make sure to mark these dates on your calendar to keep track.
Meanwhile, the deadline for each monthly return is the 19th of the following month. For instance, if your tax month is from 6 April to 5 May, your return deadline will be 19 May. A bit of a mind boggling and arbitrary choice.
Failure to meet the deadline can trigger an immediate penalty starting at £100, which will increase with time. Therefore, you must know your deadlines and adhere to them diligently — or it will cost you.
Organise your paperwork
Before filling out your return, make sure you have all required documents. Organising these beforehand can save you much-needed time and stress.
Documents that you need include invoices from subcontractors, payment records, and verification from HMRC.
Meticulous record-keeping isn’t just good practice — HMRC requires it. Maintaining well-organised and accurate records can also be a lifesaver in the event of an audit.
Verify your subcontractors
One mandatory step that demands your attention is the verification of your subcontractors with HMRC. Usually, this process is simple and can be done with a quick call or online check.
The verification process determines the tax rate to be withheld from your subcontractors’ payments. Incorrect verification can lead to improper deductions, causing potential complications with HMRC.
Under CIS, the standard rate of deduction is 20%. If a subcontractor is not registered with HMRC, the rate increases to 30%. For those with a “gross payment” status, the rate is 0%.
Submit the return and make the payment
Once you have your information and calculations in order, the next step is to submit the return via the HMRC online portal.
After that, you need to send the payment to HMRC. This needs to be completed by the 22nd of the month that follows your tax month. Like late submissions, missing the payment deadline can result in additional penalties.
Tips for a stress-free experience
- Use technology: Several accounting software options are designed to handle CIS returns. They can streamline the calculation and submission process, essentially doing the heavy lifting for you.
- Set timely reminders: Don’t rely solely on memory. Use calendar apps to set reminders a few days before the 19th and the 22nd. This will give you ample time to review your submissions and make payments.
- Consult an expert: If this process seems overwhelming, consulting a professional accountant can provide peace of mind. They can double-check your calculations, offer advice, and even handle the submission on your behalf.
- Review before submitting: Always double-check your entries for errors or inconsistencies. A simple oversight can result in unnecessary fines or delays, making a thorough review crucial.
- Talk to an accountant: When in doubt, always speak with a finance professional for advice.
Get in touch
Completing your CIS monthly returns and payment responsibilities doesn’t have to be daunting: with minimal stress, with a good understanding of the process, accurate documentation, timely actions and the help of an accountant, you can stay on top of your obligations.
Looking for an accountant who can help you with the CIS? Look no further than us; get in touch with us today.