CONSTRUCTION INDUSTRY SCHEME

Monthly Returns CIS300

Construction Industry Scheme – CIS – is a contractors system operating in the UK under the current form since April 2007.

Entities involved in UK trade in the construction industry are under obligation to comply with CIS regulations. You can easily guess that it is all about controlling tax liabilities on profits generated in building trade. Simply put, it is about a situation when the main contractor pays the subcontractor (commonly known as Subbi) for completion of the contract, after deduction of CIS (advance for tax) and with the participation of CIS authorization and reporting system.

In addition to confirming the status of subcontractor (Standard/Higher rate and gross status), contractor is also obliged to secure the payment on account of income tax liability of a subcontractor, respectively 20% or 30% (standard/higher rate) and within a month of time to forward it over to HMRC.

It is important to emphasise that CIS regulations and requirements for deductions apply equally to any entity (LTD Company, Partnership and Self-Employed person), involved in construction work for the main contractor.

Contract Strategies (IR35 Compliance)

Our advisors have vast experience in organizing the remuneration system,
correct reporting and recording contract documentation.

It is necessary to mention a very important issue related to the main contractor, where he must complete a proper assessment of the the relationship with a potential subcontractor even before CIS verification.

This applies in particular to cooperation with natural person, where it must be considered if a person should be employed by the company using PAYE payroll and covered by the employment law.

Unfortunately, employment option
(Employment/Self-Employment) decision is not a subject to free choice of a contractor or cannot even be a subject of any agreements between parties.

The risk drops drastically when the task is entrusted to LTD Company, which has its own legal entity, an appropriate employment structure, insurance policy etc.

It is perfectly clear that from the tax and insurance amount point of view, and in particular social burdens and employment risks, accepting an order by a self-employed person is more attractive for both parties. However, due to significant differences resulting from the method of calculating taxes and social securities contributions, which are detrimental to state, the legislator does not leave a free choice in this matter. For that reason, an IR35 set of regulations have been made, which keeps many contractors awake at night.

Pursuant to this provision, HMRC has the right to assess the employment status of any company, at any stage of its operation and with virtually no time restrictions (including backwards). If any actions against HMRC, in form of bypassing income tax regulations and social securities contributions, are proven, HMRC has the right to demand from the contractor to pay saved in this way taxes and contributions and impose severe penalties.

The most common accusation in this type of proceedings is lack of the risk element on the subcontractor side, e.g., working at fixed hours and billing on an hourly basis instead of working for the price, lack of a separate public liability insurance by the subcontractor, the use of tools/vehicles owned by the main contractor etc.

At this point, we can assure you that our extensive experience gained during over 10 years of working with CIS contractors and solutions used by our advisors will ensure a strong position in a clash with IR35 regulations.