A monthly CIS return is a key component of the government's Construction Industry Scheme (CIS). The government used CIS to combat fraud and tax evasion in the construction industry and to assist subcontractors in spreading their tax payments across the fiscal year.
Contractors are required under CIS to withhold 20% or 30% of any payment payable to a subcontractor and remit the deduction to HMRC via the CIS monthly return.
CIS operation
If you are a contractor, you must register with HMRC for CIS and file CIS monthly returns if you:
Subcontractors are paid to conduct building tasks.
Your company does not conduct construction work, but you spend more than £1 million on it each year.
When performed by subcontractors, CIS covers the following categories of work:
Alterations
Construction work
Decorating
Dismantling or demolition
Heating, lighting, power, water, and ventilation installation
Repairs
Preparation of the site
This reference - CIS guidance for contractors and subcontractors - goes into greater detail about the scope of work.
Employee status as a subcontractor
Before hiring your first subcontractor, you must first register for CIS. You should also consider whether you should treat the subcontractor as an employee. HMRC has status guidelines. If you provide the incorrect employment status for a subcontractor while filing a CIS return, you could face a fine of up to £3,000.
Check with HMRC that subcontractors are registered with CIS before making any payments to them. Registration alters the percentage of the money that is deducted.
Deduct 20% (registered subcontractors) or 30% (non-registered subcontractors) from their wages and pay the money to HMRC before the CIS filing deadline via your monthly return.
To avoid fines, you must include all deductions on an HMRC CIS form and keep full and accurate records of all CIS payments and deductions.
Making monthly CIS returns
Full details of HMRC's criteria for CIS monthly returns can be found on the Government website.
You can file returns using HMRC's online service or select commercial CIS software applications that have been authorised by HMRC. HMRC maintains a list of approved software vendors.
CIS monthly return information
You must identify all payments to subcontractors in the relevant tax month when generating data for your monthly return. When submitting your CIS monthly return, you must include information about all subcontractors you have paid. This includes the names of any subcontractors who are not required to deduct tax.
For each subcontractor, your monthly return must include the following information:
Name of the subcontractor.
Subcontractor verification code
Total payment.
Material costs paid to subcontractors
Tax rate: 20% for registered subcontractors, 30% for unregistered subcontractors, and 0% for CIS gross payment status subcontractors.
Deducted tax amount
Construction Industry Scheme (CIS): How to Verify a Subcontractor
Subcontractor payments are not made.
If you make no payments to subcontractors during a tax month, you do not need to file a normal CIS monthly return. You must instead file a CIS nil return, ideally by the regular CIS submission deadline.
If you do not file a zero return by the deadline, HMRC will assume your normal monthly return is late and you will receive a penalty notice - see below.
If you anticipate not utilising or paying subcontractors for an extended period of time, you should contact HMRC and seek an inactivity request, saying that you have temporarily ceased using subcontractors.
If HMRC grants the request, it will be valid for six months and you will not be required to submit CIS monthly returns or CIS zero returns. However, if you resume utilising subcontractors during the six-month inactive period, you must tell HMRC. You must then resume filing monthly returns.
Return deadlines for the CIS
Your CIS monthly return must be filed within 14 days of the end of the tax month, which finishes on the 5th of the month. That means you must submit your monthly returns to HMRC by the 19th of the month following the previous tax month.
For example, if you are submitting a return for the period 6 May to 5 June, it must be received by HMRC by 19 June.
Penalties for failing to meet the CIS payment deadline
If you fail to submit your monthly return on time, you will be penalised at the following rates:
One day late - £100
£200 for being two months late.
6 months late: £300 or 5% of CIS deductions on the return, whichever is greater.
12 months late - £300 or 5% of CIS deductions on return, whichever is greater.
More than 12 months late - a penalty of up to £3000 or 5% of the CIS deductions on the return, whichever is greater.
If you disagree with a penalty, you have 30 days from the date of HMRC's penalty notice to file an appeal.
If you file a CIS zero return and notify HMRC that you did not make any payments to subcontractors during a given tax month, HMRC will waive the penalty.
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