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