Construction Industry Scheme (CIS)

 

The Construction Industry Scheme (CIS) applies to contractors and subcontractors in the construction industry.  It affects how payments are made to subcontractors as the contractor deducts tax and pays it to HMRC on behalf of the subby.

There are 3 different deduction amounts and it’s important that you understand which to use.

  • Standard rate (20% for registered subcontractors),
  • Higher rate (30% for unregistered subcontractors), and
  • Zero rate (for those who qualify for gross payment status, meaning no tax is deducted).

To add an extra layer of complexity, the deduction doesn’t apply to materials.  If a subcontractor invoices for £100 labour and £20 materials, you calculate the deduction on the £100.

For a subcontractor, all the deductions throughout the year have been paid to HMRC by the contractor and will be sitting in your tax account.  When your tax return is submitted, these deductions will be applied by HMRC and you will only have to pay the difference between them and the total tax due.

JB Accounts, your local mid Cornwall accountant can handle your CIS requirements.  We can help you to register (and advise if you need to) for CIS and with verifying subbies.  JB Accounts can create all the payment statements that have to accompany payments and liase with HMRC on your behalf.

In addition to needing to know if your business falls under the CIS rules, you need to know if it’s affected by the Domestic Reverse Charge (DRC)

Domestic Reverse Charge (DRC)

Usually, if your business is VAT registered you have to charge VAT on all VATable sales.  Another quirk in construction is the introduction of the domestic reverse charge (DRC) in 2021.  This means that now only the invoice to the final customer has VAT charged.  All the invoices further up the chain have the reverse charge listed so that they don’t charge VAT to each other.  Whereas before you charged VAT regardless, now you need to think about who the end user is to know whether to charge VAT or to use the DRC.

JB Accounts can go through this with you and make sure that you have the correct VAT treatment on your invoices.

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