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

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

Need help?

Need an accountant? Call me now!

Similar articles:

Why It’s Worth Organising Corporate Events
Why It’s Worth Organising Corporate Events

Corporate events are an excellent way to build teamwork, boost employee morale, and create a positive atmosphere at work. Besides the benefits associated with integration and relationship building, there are also specific financial advantages that these events can...

Why Business Entertainment Expenses Are Not Tax-Deductible
Why Business Entertainment Expenses Are Not Tax-Deductible

Many businesses utilise various forms of business entertainment, such as shared meals, sporting events, or gifts for clients, to build better relationships and promote their services. While these activities may seem like a justified part of running a business, there...

4th Grant
4th Grant

Fourth grant for self-employed will start at the end of April 2021, the exact date will be announced soon.   Good news for people who did not quallfied for SEISS so far!!!   If you started your seld-employment after March 2019 or you were not entitled to the...