Your Guide to Construction Industry Scheme (CIS) Statements
Discover everything you need to know about Construction Industry Scheme (CIS) statements in our comprehensive guide. Learn the essentials of CIS, including tax deductions, required documentation, and registration rules for contractors and subcontractors. Ensure legal compliance and manage your financial health effectively with our expert advice and resources.
What is the CIS?
The Construction Industry Scheme (CIS) is a system established by HMRC to ensure that self-employed construction workers adhere to tax regulations and to reduce tax evasion.
Under CIS, employers deduct either 20% or 30% from a worker’s pay to cover their Income Tax and National Insurance (NI) Contributions for the year.
At the end of the year, the worker must file a Self Assessment Tax Return to determine their total tax and NI liabilities. If the CIS deductions are less than the total owed, the worker must pay the difference. If the deductions exceed the liabilities, the worker may receive a rebate.
A Construction Industry Scheme (CIS) Statement is a document that provides written proof of the tax deductions made by a contractor. This statement is sent to the worker each time they are paid.
What’s included on a Construction Industry Scheme (CIS) Statement?
Also referred to as a CIS payment and deduction statement, it includes a detailed breakdown of the following:
- Contractor’s details
- Subcontractor’s details
- Subcontractor’s Unique Taxpayer Reference (UTR)
- Verification number (for CIS deductions at the higher tax rate)
- Gross pay
- CIS tax deduction amount
- Business materials
There is no mandatory format for a CIS payment and deduction statement, but it must include this essential information at a minimum.
Why was the Construction Industry Scheme (CIS) scheme introduced?
The Construction Industry Scheme (CIS) scheme was introduced in 1971 to prevent tax evasion in the construction industry. Previously, only subcontractors with gross payment certificates (714 certificates) issued by the Revenue could be paid in full for construction work. Others had to receive payments after deductions for income tax and Class 4 National Insurance contributions.
Understanding the CIS scheme and accurately managing your CIS statements is crucial. It ensures legal compliance and helps you manage your financial health as a contractor or subcontractor. The scheme protects both contractors and their employers.
The CIS applies to both mainstream contractors and deemed contractors to ensure proper tax deductions within the industry. Mainstream contractors operate within the construction industry, while deemed contractors are businesses outside the sector that spend significantly on construction activities.
Common challenges for contractors and subcontractors related to CIS statements include understanding the scheme’s intricacies, maintaining accurate records, and ensuring compliance. To overcome these challenges, one can educate themselves about the scheme, use software to track records, and seek advice from a tax consultant.
Rules for Construction Industry Scheme (CIS) Payment and Deduction Statements
Under the Construction Industry Scheme (CIS), contractors must provide at least one payment and deduction statement (PDS) each tax month, within 14 days of the end of the tax month. A tax month runs from the 6th of one month to the 5th of the next (for example, 6 August 2024 to 5 September 2024).
The statement must include the contractor’s name, details of the payment(s) made, the cost of any materials incurred, and the deduction(s) made from the payment(s).
It is essential to retain these statements, along with your expense records, as you will need them for your tax return. Failure to keep adequate records or to complete your tax return correctly and on time may result in penalties.
If you lose or are missing statements, you should first contact the contractor to request them. HMRC will only provide information from their systems if you can demonstrate a genuine need and have made every effort to obtain the missing information. The relevant HMRC contact details are available on GOV.UK.
If you are unable to obtain the statements, you can estimate the amounts needed for your tax return using your bank statements. For example, if you are a CIS-registered, labour-only worker not using the gross payment scheme and received £260 in your bank account, this amount is after a 20% tax deduction. You can calculate the gross payment as £325 by multiplying £260 by 100/80. The difference, £65, is the CIS amount withheld.
Do builders / contractors need to be Construction Industry Scheme (CIS) registered?
You must register as a contractor with the Construction Industry Scheme (CIS) if you:
- Pay subcontractors to perform construction work.
- Operate a business that does not engage in construction work but has spent more than £3 million on construction within the 12 months following your first payment.
Do I get a P60 as a Construction Industry Scheme (CIS) contractor?
As a self-employed individual, you do not receive a P60 because you are not employed by a company. If you are a sole trader, you do not need a P60 since you do not receive a salary. However, if you run a limited company and pay yourself a salary, you are required to issue yourself a P60.
If you are new to the Construction Industry Scheme (CIS) and need to register check out our blog on how to register for CIS here: https://www.cedarhouseaccounting.co.uk/how-do-i-register-for-cis/
The HMRC website has lots more detailed information to support you which we have added the websites below:
What you must do as a Construction Industry Scheme (CIS) Contractor: https://www.gov.uk/what-you-must-do-as-a-cis-contractor
What you must do as a Construction Industry Scheme (CIS) Subcontractor: https://www.gov.uk/what-you-must-do-as-a-cis-subcontractor
If you still feel you would like to talk with someone to discuss the options and what you should be doing, please do not hesitate to contact us we would be more than happy to chat through. https://www.cedarhouseaccounting.co.uk/contact-us/
