CIS Returns and Monthly Reporting for Contractors

November 21, 2023

The Construction Industry Scheme (CIS) is a pivotal part of the government’s strategy to enhance transparency, reduce fraud, and ensure fair practices within the construction sector. For contractors engaging subcontractors, compliance with CIS is not only a legal obligation but a means to contribute to a healthier industry ecosystem.

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Who is Covered by CIS?

All contractors in the construction industry using subcontractors must register for CIS. Subcontractors, regardless of whether they are self-employed individuals or companies, face higher deduction rates if they choose not to register.

Verifying Subcontractors and Deduction Rates

Before commencing any construction work, contractors must rigorously verify subcontractors’ tax status and CIS registration. Utilizing HMRC’s free online service or approved commercial CIS software is crucial for this process. The deduction rates vary depending on the subcontractor’s registration status: 30% for unregistered subcontractors, 20% for registered subcontractors, and 0% for those with gross payment status.

Monthly CIS Returns and Filing Process

A core element of the CIS is the monthly return, where contractors report to HMRC details of payments made to subcontractors and any associated deductions. This information is crucial for ensuring that tax liabilities are appropriately spread over the financial year. Contractors can submit returns through the HMRC CIS online service or approved commercial software. The deadline for filing returns is the 19th of each month following the tax month.

Penalties for Late Returns

Late filings incur penalties, which escalate based on the duration of the delay. For instance, a one-day delay results in a £100 penalty, while returns more than 12 months late can lead to additional penalties of up to £3,000 or 5% of the CIS deductions on the return, whichever is higher. Timely and accurate filing is imperative to avoid these penalties.

Inactivity Requests and Changes

Contractors can request inactivity status for up to six months if they temporarily stop using subcontractors. However, restarting subcontractor usage requires prompt notification to HMRC. Contractors using commercial CIS software must ensure that their returns do not include any negative values.

Do I Need to Give Subcontractors a CIS Statement?

While CIS statements are mandatory only if deductions are made, providing them even without deductions promotes transparency. Encouraging subcontractors to submit Self Assessment tax returns early ensures smoother processing and potentially faster tax refunds.

Correcting or Changing Returns

In the event of errors in monthly returns, contractors can rectify them using the HMRC CIS online service or approved commercial software. Adhering to guidelines and promptly correcting mistakes is essential to avoid penalties and maintain compliance.

Operating under CIS demands meticulous attention to detail and a commitment to fulfilling obligations. Contractors play a vital role in fostering a fair and transparent construction industry by adhering to CIS requirements. Staying informed, maintaining accurate records, and promptly addressing any issues ensure a seamless and penalty-free experience with the Construction Industry Scheme.