Construction Payroll: What You Need To Know About CIS and Subcontractors
If you are working in the United Kingdom’s construction industry, you need to familiarize yourself with CIS Payroll system.
The Construction Industry Scheme or CIS is a requirement for companies that hire subcontractors to work on construction projects. Under the scheme, the company must make deductions from what they pay their subcontractors, which is then passed on to HM Revenue and Customs.
The money deducted from the subcontractor will count as an advanced payment to the HM Revenue and Customs, which will cover their National Insurance as well as their taxes.
What is required from contractors through CIS?
When you hire a new subcontractor, you need to verify if they are registered with CIS; while you can still hire them even if they are not, the rate of deductions that you will need to use will vary.
Deductions for registered subcontractors are 20% of their pay compared to 30% for unregistered subcontractors.
Every month, you need to pay HM Revenue and Customs with the deductions that you made for your subcontractors. This payment will need to be made by the 22nd of every month.
You will also need to file monthly returns with the HM Revenue and Customs that declare the payments you made to your subcontractors.
If you didn’t make a payment to a subcontractor that month, you still need to tell the HM Revenue and Customs that there is no return due.
The monthly returns to the HM Revenue and Customs need to be made by the 19th of the month following the last tax month.
If you miss the deadline, there will be a penalty that will need to be paid. If you are late by one day, the penalty is £100; two month late will incur a £200 penalty, six months late will result in a penalty of £300 or 5% of the CIS deductions on the return, whichever is higher, 12 months late will have a penalty of £300 or 5% of the CIS deductions on the return, whichever is higher, later than 12 months, will incur an additional penalty of £3,000 or 100% of the CIS deductions on the return, whichever is higher.
You also have to give your subcontractors a payment and deduction statement, which states how much was deducted from their pay and proof that you sent it to HM Revenue and Customs.
You need to do so within 14 days at the end of every tax month.
You can do most of this using the HM Revenue and Customs online service or commercial CIS software. However, many contractors find it best to work with a CIS Payroll company as it saves them time and prevents them from incurring penalties.