What is CIS management and how can it benefit you

This article provides an insight into what CIS management is and what the benefits are.

What is the Construction Industry Scheme?

The Construction Industry Scheme sets out rules for how construction contractors must handle payments to subcontractors and other businesses. The scheme involves tax being deducted at source from payments that relate to construction work. Payments to employees are covered by the Pay As You Earn (PAYE) system, therefore, CIS does not apply to payments made to employees.

Contractors must register for the scheme, while subcontractors have the option to register or not. However, if a subcontractor doesn’t register for the scheme, they will have a higher percentage of pay deducted from them.

If the subcontractor passes three tests and registers with HMRC (business, turnover, and compliance tests), they will receive gross payments from the contractor. The rate at which tax will be deducted depends on the registration status of the subcontractor. The following three scenarios are possible:

  • if the subcontractor does not register for the scheme, then the contractor must deduct tax at a rate of 30% from payments it makes to the subcontractor. This excludes VAT charged by the subcontractor and the cost of materials.
  •  if the subcontractor does register but does not qualify to receive gross payments, the contractor must deduct tax at a rate of 20% from payments. Again, excluding VAT charged by the subcontractor and the cost of materials. Even if the subcontractor does not pass the qualifying tests to be entitled to gross payments, it would still be better for the subcontractor to register to receive a deduction rate of 20% instead of 30%.
  • if the subcontractor registers to receive gross payments, the contractor will not deduct any amount from the payments and tax is then later accounted for by the subcontractor on those payments on its annual tax return.

What is Construction Industry Scheme Management?

CIS management is the process of manging all aspects of CIS to ensure that the correct processes are followed. We provide a full service by:

  • verifying each of your subcontractors to determine the level of tax to ​deduct from them
  • providing the subcontractors with the necessary statements that are lawfully required
  • filing monthly returns to HMRC
  • advising you on what needs to be paid and when

Benefits of CIS management

There are many benefits of having the CIS scheme managed for you. Some examples are:

  • Confidence that contractors are paid on time
  • Save valuable time in reduction of administrative requirements
  • Avoidance of late filing penalties
  • Assurance that the correct amount of tax is paid or reclaimed
  • No set-up or exit fees to take advantage of our service
  • Assurance that all legal obligations are met

Please get in touch if you would like to discuss how we can help with CIS management.

What is CIS management and how can it benefit you