Nov 10, 2024

Register for CIS: The Ultimate Guide

CIS deductions are relieved at source and act as advance payments for the subcontractor’s tax and national insurance.

Builders who do not comply with the scheme may face penalties, including extra deductions and fines. Hence, understanding the CIS registration process is crucial for easing your operations. Fortunately, HMRC’s website provides a comprehensive framework.

However, the literature provided is extensive and confusing. As usual, much information must be inferred. Therefore, we have created this guide to cover the main points more straightforwardly.

Understanding the basics

The CIS scheme focuses on businesses operating in the “construction work” line. However, HMRC's definition might not be what you think.

What is considered construction work?

The CIS considers all the following as construction work:

Site preparation – This includes duties like laying foundations and providing access works.
Alterations Dismantling
Construction
Repairs – also include cleaning the inside of buildings after construction is complete.
Decorating
Demolition

This classification is central to the Construction Industry Scheme (CIS) and directly impacts CIS deductions.

An important side note: the CIS is concerned with all construction work completed inside the UK. Even if your business is based outside of the UK, if the work is completed within the region, then you are subject to the CIS. (UK territorial waters up to the 12-mile limit are considered inside the UK)‍

There are also some apparent exceptions for what the CIS does not view as construction work:

Architecture and surveying
Scaffolding hire (with no labour)
Carpet fitting
Making materials used in construction, including plant and machinery
Delivering materials
Work on construction sites that are not construction – for example, running a canteen or site facilities.

What business types are considered under the scheme?

Contractors and subcontractors typically fall into one of these categories:

Companies
Partnerships
Self-employed individuals

What are the differences between contractors and subcontractors?

According to the CIS rules, a contractor is a business that pays subcontractors for construction work, including construction companies, building firms, government departments, and local authorities. Under this system, private households would not be considered contractors and, therefore, must not adhere to these guidelines.

A subcontractor is “a business that carries out construction work for a contractor”. Sometimes, you may have to act as both or either party. In that case, follow the rules for both contractors and subcontractors. If you pay someone for construction work but are not considered their own business, they should be regarded as employees, not subcontractors.

Contractors and subcontractors must diligently manage their income tax and National Insurance contributions under the CIS.

Where should you get started?

Registering as an Employer

When ready to handle tax payments under the CIS, register as a new employer here. After registering, the HMRC will set up your Contractor Scheme and instruct you where to find further information.

Registering as a Subcontractor

When ready to start working in the construction industry, you should register for CIS as a subcontractor. Regarding subcontractors, there are different forms depending on whether you are a sole trader or another type of business. You should check out the government site for more information on these forms. After you register, HMRC will contact you to confirm and provide information for the next steps.

When registering as a subcontractor, you should also consider whether you want your contractor to make deductions or if you want to receive a gross payment. If you receive a gross income, you will still be responsible for deducting the appropriate taxes later.

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Struggling with HR tasks in the construction industry? This guide offers a comprehensive introduction to common HR challenges and solutions to overcome them.

What are contractors responsible for?

Subcontractors Verifications

Verifying subcontractors is one of a contractor's most critical responsibilities. Before paying a subcontractor for their work, you must verify that the subcontractor is CIS registered. The HMRC will then further assist by letting you know what their deduction rate should be or whether the subcontractor has requested gross payments.

Verifying your subcontractors can be done in one of two ways: using the CIS Online Service or commercial CIS-integrated software such as Moonworkers.

Calculating tax and National Insurance

The CIS states that contractors must calculate payroll deductions on behalf of the subcontractors.

If you are a contractor responsible for making a deduction, here is what you must consider when making payments:

Calculate the deduction
Make the deduction
Record details of the payment, materials, and deduction
Make the net payment to the subcontractor
Complete and give the appropriate statement of deduction to the subcontractor.

Accurate CIS deductions are vital for compliance, and these should be meticulously reported in your monthly CIS return. However, in the instance of an error, you can contact the HMRC to attempt to make corrections.

Returns

Every month, contractors must send a return of all payments and deductions through the CIS 300 online service. HMRC-recognised payroll software makes this service available within their system. The HRMC must have these returns within 14 days after the payment date.

Your returns should include:

Details of the subcontractors
Details of the payments made and any deductions withheld
A declaration of compliance
You have verified all subcontractors.

Paying HMRC

Contractors must use the HMRC's PAYE online service to send payments for statutory deductions.

Why a commercial CIS software might be a great investment?

We have summarised the responsibilities of a contractor through the CIS into these four main categories:

Verifying subcontractors
Making deductions from payments
Send filings
Pay HMRC

Although the HMRC has an online portal for submitting payments, contractors are mainly responsible for calculations and assessments, and this is not straightforward at all.

When making deductions, you’ll need to complete the following calculations:

First, determine the total amount before deducting VAT charged by the subcontractor. Consider whether the subcontractor is VAT registered. You must record this gross amount to enter it on your monthly returns.
Second, subtract the subcontractor’s expenses from the gross payment amount. These expenses include materials, consumable stores, fuel, plant hire, and manufacturing or prefabrication costs.
Third, calculate employer and employee National Insurance.

After calculating deductions, the contractor will still be responsible for sending returns to the HMRC each month. Using the HMRC CIS 300 online service, you can input all the records you kept for gross amounts paid, deductions, etc.

Calculating NI can be complex, especially with other business tasks like payroll. This can be overwhelming. However, when assisted by CIS commercial software, you can significantly reduce the stress associated with automating most of it.

Moonworkers, an HMRC-recognised CIS software

Commercial CIS software can be particularly beneficial for builders, streamlining their CIS duties and compliance processes. While some commercial CIS software may solely help with CIS duties, Moonworkers strives to do more for business owners.

Moonworkers established itself to help CIS businesses streamline their subcontractors’ onboarding verification, payroll, and CIS 300 submissions.

You have several options to learn more about our system and see if it meets your needs. Book a demo, chat with our experts, or try the Moonworkers platform.