Home improvement business owner asks:
I run a home improvement (kitchen fitting) company. Does the Construction Industry Scheme apply to my business?
Acumenica answers:
Yes. Although people often assume the CIS scheme applies only to construction activities, home improvements also fall under the banner. So, even if your customer is the homeowner, you are still operating in the construction industry, as defined by HMRC. So, while you will, of course, be paid without deduction of tax from your customer, if you use subcontractors, you will need to verify them, make deductions, and report as appropriate.
What’s the verification process?
There are three ways to verify a subcontractor:
- use HMRC's CIS online service
- call HMRC's CIS Helpline - 0300 200 3210
- use a third-party software package
Whichever way you choose, you must provide the following information about your business as a contractor:
- the name of your business or organisation
- your unique taxpayer reference (UTR)
- your accounts office reference
- your employer reference
You will also have to provide information about the subcontractor. This will vary depending on whether the subcontractor is a sole trader, partnership or limited company but will generally be legal name; tax reference; NI number (if a sole trader); company number (if a limited company).
HMRC will check the details provided against their own records and will confirm whether the subcontractor is registered. They will give you a verification reference number and tell you how much tax to deduct when you pay them.
The verification number is generally in the format of V followed by 10 numbers, such as V123456789. If HMRC can't verify that the subcontractor is registered they will provide a different type of reference number. If you verify multiple subcontractors at the same time, HMRC will provide the same verification number.
The verification number acts as your proof that you are deducting the correct amount of tax.
Based on HMRC’s response, the rate of tax you need to deduct will be:
30% if they are not registered as subcontractors
20% if they are registered at the standard/ net rate
0% if they are registered with gross payment status
CIS deductions
Once you’re verified your subcontractors, and you know what rate to deduct, you need to make these deduction from every payment you make to them.
Follow these easy steps to calculate the CIS tax deduction:
1. First, take the total (gross) amount of the subcontractor’s invoice.
2. Subtract the following amounts paid to the subcontractor from the invoice total:
Value-added Tax (VAT)
Materials
Plant hire costs
Other allowable deduction
3. Multiply the remaining amount by the CIS deduction rate to get the CIS amount.
CIS reporting
Every month, the contractor must submit a CIS return to HMRC. The CIS return requirements follow the same periods as PAYE so periods end on the 5th of each month, and mist be submitted by 19th.
Paying HMRC your CIS deductions
The final step is paying the deductions you make over to HMRC. Payments under the construction industry scheme are paid monthly or quarterly to HMRC.
Monthly payments – must be paid within 14 days of the tax month end or 17 days if paying electronically. For example the CIS return for the month ending 5th May must be paid to HMRC by 19th May by post or electronic payments by 22nd May.
If the contractor also has employees there may be PAYE & NI due. Typically CIS payments and PAYE & NI are paid over to HMRC at the same time on the same payment.
Quarterly payments – must be paid within 14 days of the quarter end or 17 days if paying electronically. The quarter ends are on 5th July, 5th October, 5th January and 5th April.
Quarterly payments can only be made if the average monthly liability for CIS, PAYE & NI totals less than £1,500 per month.
Note: If you are also a subcontractor, and you’re subject to deductions from your own income, you can offset this against any CIS/PAYE liability you have. This means you might not need to pay anything at all, or at least a much reduced amount. This can be very helpful for your cash-flow.
The Acumenica team are on hand to help business owners with all tax matters. To arrange a no-obligation confidential chat, please complete the form on our Contact Us page or call 03330 166559.
