Construction industry scheme outline
The construction industry scheme operated by HMRC in the united kingdom, requires that construction businesses, contractors, in the UK withhold an amount for taxes when making payments to independent contractors.
- The Contractors in the construction industry who employ subcontractors, have to with hold money from what they pay their sub contractors. They have to be registered with HMRC as contractors.
- Sub contractors do not have to register HMRC as sub contractors .
- 20% deducted from HMRC registered sub contractors.
- 30% deducted from HMRC unregistered sub contractors.
- Contractors have to keep and retain detailed records of payment and deductions
- Money deducted has to be paid to HMRC by the company with holding the money.
- The money deducted under CIS is a forward payment against the sub contractors tax liability for the relevant financial year.
- contractors are required to issue a Payments and deductions statement to their sub contractors.
Reclaiming Construction industry scheme deductions
The way CIS is operated often results in the sub contractor been due a tax refund. This tax refund is often referred to as a tax rebate.
There are a number of things to consider at the financial year end regarding tax liability and CIS deductions.
- The deductions suffered by the sub contractor will be offset against the sub contractors personal tax liability at year end if the sub contractor is self employed this is usually handled via a self assessment tax return.
- A company can suffer cis deductions on its income if the company is itself a sub contractor. The same company can also have sub contractors and be required to make deductions of the income paid to its sub contractors. The deductions collected from sub contractors can be off set against the deductions suffered by a sub contracting company who also uses subcontractors.
- CIS deductions can be offset against a businesses PAYE liabilities.
- CIS deductions cannot be offset against corporation tax liabilities or reclaimed against corporation tax payments.
- Where there is insufficient PAYE related liability and payments to offset the CIS deductions, the are other CIS reclaim procedures available at HMRC.