CIS – what is it, what for and what to do with it?

CIS (Construction Industry Scheme) is a tax deducted by the contractor from the subcontractor’s salary and transferred to HMRC.

In other words, it is a tax that must be declared during self-assessment tax return and usually the overpaid amount is refunded.

Verification

If a subcontractor works for the first time for the constructor, the latter must verify the data from HMRC. After verifying the data, the subcontractor has his verification number and 20% of each payment is deducted.

If HMRC is unable to verify, the constructor must deduct 30%.

It is important, when registering as self-employed, to report that the person will be working as a subcontractor. Otherwise, the verification will not take place and as a result the higher tax will be deducted.

How is CIS calculated?

Generally speaking, it is a tax on earnings. Depending on whether the subcontractor has paid for the materials or not.

There are 2 basic ways to calculate CIS

Example 1- the subcontractor did not pay for the materials:

• Gross amount: £1500
• CIS tax £300 (20% of £1500)
• Net amount £1200

Example 2 – a subcontractor has paid for the material and has been given it back by the constructor

• Gross amount of £1500
• Material £310
• CIS amount £1190 (1500 – £310)
• CIS £238 tax (20% of £1,190)
• Net amount £1262

Of course, you should take into account whether the subcontractor is VAT registered.

Monthly certificates

The client is obliged to issue monthly certificates. They include:

• Gross pay,
• Cost of any materials paid for by the subcontractor and refunded the money spent
• Amount of CIS tax deducted
• Amount paid after tax (net).

It is important to have such certificates as they not only help with self-assessment, but also confirm that the CIS is collected and transferred to HMRC. Monthly certificates are available from the 6th of each month to the 5th of the following month, so it is not a calendar month.

I don’t have a certificate!

If you have misplaced your certificate, you should contact the constructor and ask for a copy. If this is not possible call HMRC on 0300 200 3210 and ask for a copy.

One has to remember that it takes approximately 2 weeks to receive the confirmation.

ATTENTION

HMRC will not give you copy of the CIS certificate or the statement if you asked for it in the past.

The subcontractor must retain the statement as proof of the amount deducted. If the subcontractor does not have all of their statements, they have to ask their contractor for replacement copies.

It is possible to request missing statements from HMRC. Previously, subcontractors could do this by calling HMRC’s CIS helpline. From 1 July 2024, HMRC only accepts requests made in writing. Include the following information:

• your name, address and Unique Taxpayer Reference (UTR)
• the name and address of the contractor
• the contractor’s tax reference – if you know it
• the dates of the payments or the tax months when the contractor paid you
• the reason why you do not have the statements or duplicates

PT Operations
HM Revenue and Customs
BX9 1BX

HMRC will aim to respond to the request within 15 working days.

IMPORTANT: Please note that you cannot rely on bank statements to calculate the tax amount for your annual tax return, you must have certificates.

Similar articles: