Everything That You Need To Know About The Construction Industry Scheme

 HM Revenue and Customs, also known as  HMRC in the UK has a program called CIS for regular contractors and deemed contractors in the construction sector. The distinction between the two is that the mainstream contractors' primary business is construction. Even though construction is not a designated contractor's primary business activity, they frequently spend loads and loads of money on it each year. Before contractors get to paying the subcontractors under the Construction Industry Scheme, HM Revenues and Customs provides instructions. The HMRC clearly states, that, before hiring their first subcontractor, the contractor must be registered with CIS. The registered contractor is required to withhold payments from their subcontractor and pay the difference to the HMRC. The United Kingdom is the only country where this scheme applies. Businesses based outside the UK, however, must abide by the  Construction Industry Scheme regulations if they are willing to, or are currently working on construction projects there. All payments made by contractors to subcontractors must take HMRC's tax status into account. If the contractor does not cover the subcontractor's material costs, they may withhold money from the payment and pay it to HMRC. Let us, now, look into a few basic definitions, get familiarized and then move on. 

Who are a contractor and a subcontractor?

A contractor can be a business, individual, or any other party that pays the subcontractor for the construction work. Public bodies, local authorities, building firms, and construction companies, all fall under the category of a contractor. Businesses that have an average construction expenditure of 1 million pounds or more over a span of 3 years also fall under the category of a contractor. However, private house owners do not fall under this category and if you have plans to buy a new house and build it from scratch then you can go ahead without worrying about anything.

A subcontractor is a business that carries out work for the contractor. We must be aware that businesses can play the role of a contractor and a subcontractor at the same time and many companies do the same as it profits them way more when being just a contractor or just a subcontractor. Many organizations hire construction businesses while simultaneously being paid to do separate construction work of their own. Contractors and subcontractors must ensure to register with the government of the UK as it is a way of getting recognized and is overall important. 

The cis monthly return UK

If you are a contractor then you must remember that you or your business have to file for a monthly return of all the payments that you have made within the Construction Industry Scheme and if you haven't made any then also you must let the official authorities know that you have made no payments. The return must include the details of the subcontractors, details of the payments made, and any deductions not done, a declaration that the status of all of the subcontractors under you have been considered, and finally, the last declaration that all the subcontractors who were supposed to be verified are verified. You must ensure that your entries are not negative numbers, if it is then you must simply put a 0. If you've temporarily stopped using subcontractors, you can let HMRC know if you want to submit an "inactivity request." This would last for half a year i.e. 6 months from the date you apply.  When you start using subcontractors, you must ensure that you update the HMRC about it. The HMRC would then later ask you about the details. All of this can take a huge sum of your time and you must hire a responsible and trustworthy tax consultancy firm so that you save a good amount of time and be in the good eyes of the legal authorities checking the cis monthly return UK. 

Penalty for the late submission of the cis monthly return UK

You must send your cis monthly return Uk to the HMRC by the 19th of every month. Falling to do so can result in consequences in the form of penalties, etc. However, if you did not pay any subcontractors that month and let the HMRC know about it then the penalty will be canceled. If you did pay the subcontractors and still miss submitting the cis monthly return and are a day late then a fine of 100 pounds can and will be imposed on you, if you are 2 months late then the penalty price will be doubled and you will have to pay 200 pounds, if you are 6 months late then you will have to pay a penalty of 300 pounds or 5% of the CIS deductions and on submission of later than a year, you will have to pay 300 pounds or 5% of the CIS deduction on the return. Always remember that the penalty in case of the 6 months due and the 12 months due will be the higher amount in the 300 pounds or the 5% OF THE CIS deduction. In extreme cases when the return has not been filed for more than 12 months, a fine of over or around 3000 pounds can and will be imposed on you or you will have to face 100% of the CIS deductions on the return (whichever turns out to be higher).

Conclusion

The important thing to take away from this, as tax-paying citizens, is that you must understand your responsibilities as a contractor and/or subcontractor under CIS. Registration with HMRC is a key requirement, and of course, we can not forget the timely submission of the monthly returns as well. The existence of a procedure also acts as an extremely important requirement for identifying the current construction contracts. You can always enlist the help of experts to ensure adherence to the CIS rules if it comes to that.