The CIS scheme was introduced only in recent years, as HMRC had found formal and substantial irregularities as a result of the lack of fiscal compliance at the British “construction sites”.
“Building site” means both construction sites (residential buildings under construction, factories, offices, warehouses, shopping malls, etc.) and construction sites that build temporary structures, works or civil engineering installations, infrastructure and major works.
Procedure for registration
You must register with the CIS as a contractor if:
- Subcontractors are paid for construction work;
- Your company does not have construction work, but it spends on average over £1 million a year for constructions.
You must register with the CIS as a subcontractor if:
- Construction works are carried out for a building contractor.
You must register as both if you are in both categories.
This also applies to single contractors, partnerships or limited liability companies.
You do not need to register if you only perform certain jobs, including:
- Architecture and survey;
- Hire of scaffolding (for purposes other than construction);
- Installation of carpets,
- Production of materials used in construction, including plant and machinery;
- Shipments of building materials;
- Works on construction sites with ancillary activities (ie. managing a canteen or a construction site).
Procedure for payment
Before making any payment to a “subcontractor”, the contractor must register with the CIS scheme and check that the “subcontractor” is also registered (therefore having an identification code) to properly apply the deduction. Subsequently, the “contractor” will be able to pay to the “subcontractor” the gross amount (0% deduction) or alternatively make a tax deduction at source (20% deduction if the subcontractor is registered), which the “contractor” will then have to pay to HMRC on a monthly basis, keeping the correspondent CIS records complete. The subcontractors are not required to register, but their deductions are drawn at higher rates if they are not, since the “contractor” is obliged to make a 30% fixed tax deduction from any payment for services. The following are excluded from the regulations:
- Purchase of materials;
- Some types of consultancy services (architects, surveyors, etc..);
- All employer/employee working relationships.
Payments are usually sent directly to the subcontractors, but it is also possible to pay through a third party (for example, another company) if required.
If deductions are made, a payment and deduction statement must be submitted to the subcontractor within 14 days from the end of each fiscal month.
In the event of a break in the scheme and if it is known that no payments will be made to subcontractors for six months (maximum limit), it may be possible to make “inactive” the CIS scheme. It will be necessary to submit a return for the activation when the subcontractors are paid again.
When registering as a “contractor”, if there are already employees, HMRC will change the PAYE scheme into a double “PAYE / CIS” scheme. In this regard, it will be required to make a monthly or quarterly payment to cover all the taxes related to PAYE, NIN and CIS. Specifically, the deadline for payment to HMRC is set out each month by the 22nd (or by the 19th if paid by postal order). Interests and sanctions are applied if the so-called “deadlines” are exceeded.
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