The Construction Industry Scheme works in a similar way to PAYE for construction firms and self-employed workers in that industry.
There are three levels of CIS deduction which contractors must make when they pay a sub-contractor:
- 30% if the sub-contractor is not registered with HMRC;
- 20% if they are registered but do not have a CIS certificate;
- 0% if they have a CIS certificate.
When payment is made for work within the CIS by a person or company who is also within the CIS they must send a report to HMRC even if they do not deduct any tax. If they do deduct tax they must account for it using the same Real Time Information (RTI) reporting as employers use for PAYE.
If the person or company carries out work which is within the CIS for a customer who is not, the CIS does not apply. Jobs contracted for directly with a private customer are outside the scheme.
The problem is, while direct contracts with individuals and most businesses are outside the CIS, large companies can be within it. So if an individual does work for a large company or a branch of a large company it will usually be required to make CIS deductions.
Any tax which is deducted under the CIS can be used to set against a person or company’s tax bill on profits or against PAYE or VAT liabilities. However, HMRC can be slow at processing this.
The rules become complicated if the person or company becomes involved in a joint contract. Joint billing arrangements are best avoided; make sure the client is aware that while you may quote jointly, you are both independent and separate payments are required to each of you.
For clarification of this scheme and for more information call Vincent & Co on 1803 500500.