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Understanding the Construction Industry Scheme (CIS) Return Process

Updated: Oct 16, 2023

For those working in the construction industry within the UK, the Construction Industry Scheme (CIS) plays a pivotal role in how payments are managed. The scheme covers contractors and subcontractors, with different rules and obligations for each. Here’s a deep dive into the CIS return process to ensure you remain compliant.

1. Contractor within CIS: Definition

A contractor, as defined by the CIS, is a business or individual that pays subcontractors for construction work. Contractors can be businesses outside of the conventional construction industry, too. It's not only about those who undertake construction operations but also those who spend significantly on construction as part of their business.

Who should register as a Contractor under CIS?

  1. Mainstream Contractors: Those who are in the business of construction, such as builders or property developers.

  2. Deemed Contractors: Even if construction isn't your primary business, if you spend a significant amount on construction operations over a set period, you are deemed a contractor. For instance, government departments, local authorities, and arms-length public bodies can be contractors if they have a significant expenditure on construction.

  3. Threshold for Deemed Contractors: At the time of writing this blog, if a business spends more than £3 million on construction operations within 12 months since making its first payment, it is deemed to be a contractor and should register under the CIS.

  4. Property Developers: Even if it's a side aspect of their business, property developers often fall into the category of contractors under CIS due to the nature of their work involving construction.

2. Subcontractor within CIS: Definition

A subcontractor, as defined by the CIS, is a business or individual that carries out construction work and is paid by a contractor. This can include a wide range of activities from groundwork to building work and renovations.

Who should register as a Subcontractor under CIS?

Anyone who is working in the construction sector and is being paid by a contractor for construction work should consider registering. This includes trades like bricklaying, plastering, roofing, and more.

Benefits of Registration: While HMRC does not require every subcontractor to register for the scheme, it is advisable to do so because of the higher rate of deduction.

3. Monthly Returns for Contractors

Every month, contractors must submit a return to HMRC. This return states payments made to subcontractors and any deductions taken. It's a pivotal document that keeps the system transparent and ensures accurate record-keeping.

4. Verifying Subcontractors

Contractors, before making any payment, must verify their subcontractors with HMRC. This step is crucial. It determines the rate of deduction:

  • 20% for registered subcontractors

  • 30% for those unregistered

  • 0% if the subcontractor has a gross payment status

CIS Monthly Return:

When contractors pay subcontractors for construction work, they need to send details of these payments to HMRC every month in what's called a "CIS monthly return". This return provides an account of:

  1. Payments made to subcontractors.

  2. Deductions of tax made from these payments.

Contractors must submit details of all subcontractors they paid within the tax month, even if no tax was deducted. If no payments were made to subcontractors in a specific tax month, contractors are still obligated to submit a 'NIL' return to HMRC.

Deadline for the Monthly Return:

The CIS monthly return must be submitted to HMRC by the 19th of the month following the tax month the return is for.

For example:

  • For the tax month from 6th April to 5th May, the monthly return should be submitted by 19th May.

  • For the tax month from 6th May to 5th June, the monthly return should be submitted by 19th June.

Payment to HMRC:

The deductions you make from subcontractors under CIS are advance payments towards the subcontractor’s tax and National Insurance. These deducted amounts need to be paid to HMRC.

The deadline for the payment depends on how you make the payment:

  1. Electronically (e.g., Bank Transfer, Debit or Corporate Credit Card Online): Pay HMRC by the 22nd of the month following the tax month the return is for.

  2. By Cheque through the Post: Cheques should reach HMRC by the 19th of the month following the tax month the return is for.

Remember that if the 19th or 22nd falls on a weekend or bank holiday, make sure your payment reaches HMRC on the last working day before.

Late Reporting and Payments: Failing to meet the monthly return deadline or missing the payment deadline can result in penalties. It's essential to ensure you're always on time to avoid any unnecessary fines or complications.

Need Assistance with CIS Returns?

Navigating the complexities of the Construction Industry Scheme (CIS) can be daunting, but you don't have to go through it alone. At Hamollisons Bookkeeping Services, we're here to simplify the process for you. With our expertise in CIS returns and other accounting and bookkeeping services, we ensure you remain compliant and free from the stress of handling monthly submissions and payments.

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