Understanding the Construction industry Scheme (CIS)?

[HappyHippyDad]

Hello all..

In am probably going to get some ongoing work from a chap who builds cabins. I shall be installing the electrics.

He has said that he is CIS registered. I have not come across this before.

The government site says this...

" Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC).

The deductions count as advance payments towards the subcontractor’s tax and National Insurance.

Contractors must register for the scheme. Subcontractors do not have to register, but deductions are taken from their payments at a higher rate if they’re not registered. "

The cabin builder has assured me that I do not lose out, but i am unsure of the process.

For example if I bill him £1000 and he pays me £800, how do I get the £200 back?

 

[westward10]

You need to register for the CIS scheme through the HMRS. If you are registered you submit an invoice showing the CIS deduction at 20%. If you are not registered you have two choices, put forward no deduction but the contractor is likely to deduct at the higher rate of 30%, you will also need a UTR which I assume you have.
What you get back is done through your self assessment.
I think the whole point of it is contractors aren't lumbered with a huge tax bill at the end of the year which they can't pay as they have pi££ed it all up the wall.

 

[richy3333]

I'm just required to note on my invoice 'CIS reverse charges applicable" The main contractor deducts the 20% and it goes towards your tax. I then get a statement from the main contractor each quarter. The accountant then deals with it on the tax return. Been doing it like this for years now with no complaints.

 

[Pretty Mouth]

I rarely have to do this these days, but here is how it worked last time I did (2021):

The invoice that I emailed the main contractor itemised:

The labour cost,
a deduction of 20% for CIS from the labour cost only,
the materials cost (no deduction),
the total.

So labour - (labour X 0.2) + materials = total.

The contractor paid me, then emailed me a certificate showing that the 20% income tax on labour had been paid. There is a section on the tax returns to input the CIS deductions, and this is taken into account when it calculates your tax bill. I'm not VAT registered, so don't know how that would affect your invoicing, if you are.

I have on one occasion put in an invoice showing materials only, as a workaround, as neither the contractor or I wanted the hassle. I also work for another spark a fair bit and he seems oblivious to the CIS, I just invoice him the full amount and he pays me. Not sure how either of these things would go down if either of us ever got audited by the IRS.

 

[HappyHippyDad]

You need to register for the CIS scheme through the HMRS. If you are registered you submit an invoice showing the CIS deduction at 20%. If you are not registered you have two choices, put forward no deduction but the contractor is likely to deduct at the higher rate of 30%, you will also need a UTR which I assume you have.
What you get back is done through your self assessment.
I think the whole point of it is contractors aren't lumbered with a huge tax bill at the end of the year which they can't pay as they have pi££ed it all up the wall.

So if I choose not to register and get charged at the 30%. Can I just pop that into my self assessment return and get it back? If so, I'm not too sure why anyone registers. If I register, I get 20% taken off and then get it back. You end up with the same amount whether you're registered or not?

 

[westward10]

If you are deducted 20% through CIS and you earn less than £12,750 in the tax year you can claim it all back. If you earn £15,750 in the tax year then you can only claim back the 20% on £12,750 of that, the remaining £3,000 you cannot. I've only done it through CIS so I presume without it the same process applies.