The Construction Industry Scheme (CIS) sets out the rules for how payments to subcontractors for construction work must be handled by contractors in the construction industry. The scheme applies mainly to contractors and subcontractors in mainstream construction work, however businesses or organizations whose core activity isn't construction but have a high annual spend on construction may also count as contractors and fall under the scheme.
CIS covers all ‘construction’ work– this includes decoration, repairs, site preparation demolition and related work. Both those making payments and those receiving payments need to register.
You will therefore need to register under CIS as someone making payments under CIS, even if you are already registered as a subcontractor, and withhold tax from the monies you pay your co-worker. In this situation, any tax withheld from the monies you receive from a main contractor is all treated as yours and will be applied to your personal tax liability.
As a CIS subcontractor, you need to register both for self assessment and as a subcontractor under the CIS scheme. The immediate consequence of failing to register for CIS is a higher tax deduction of 30%, but the trouble doesn’t stop there.
If you fail to register for CIS, tax returns will still need to be completed. Failure to submit tax returns can lead to fines and estimated tax bills for which collection can be enforced by HMRC – known as determination notices. Such estimates normally ignore any tax withheld by the contractor and the tax bill is therefore usually far too large. If a tax return is not submitted within 3 years from the 31 January filing date for that tax year,it may not be possible to change the estimated tax demand. The result could be lost refunds or even bankruptcy.If you have not registered for self assessment or CIS, then you are breaking the law.
on the other hand...
If you are working in the Construction Industry Scheme and have tax deducted directly from your sales invoices, we can work out your annual CIS repayment and liaise with HMRC for the refund to be processed.
The Construction Industry Scheme is a set of rules for contractors and subcontractors in the construction industry. If you're a CIS contractor (including a deemed contractor), you'll need to register with HM Revenue & Customs. You'll also have to follow certain rules to make sure you pay your subcontractors within the scheme correctly. Verification and the monthly filing process puts pressure on contractors to ensure the scheme is administered correctly and that returns are filed on time and penalties are avoided.