A CIS monthly return is a core element of the Government’s Construction Industry Scheme (CIS). The Government introduced CIS to reduce levels of fraud and tax evasion in the construction industry and to help sub-contractors spread their tax liabilities over the financial year.
CIS requires contractors to withhold 20 or 30 percent of any payment due to a subcontractor and pay the deduction to HMRC via the CIS monthly return.
If you are a contractor, you must register for CIS with HMRC and submit CIS monthly returns if:
You pay subcontractors to do construction work.
Your business does not do construction work but you usually spend more than £1 million a year on construction.
CIS covers the following types of work when it is carried out by subcontractors:
Demolition or dismantling
Installation of heating, lighting, power, water and ventilation
The scope of work is covered in more detail in this guide - CIS guide for contractors and subcontractors.
You must register for CIS before you take on your first subcontractor. You must also check if you should be treating the sub-contractor as an employee. HMRC has guidelines on status. You could face a penalty of up to £3,000 if you give the wrong employment status for a subcontractor when you file a CIS return.
Before making any payments to sub-contractors, check with HMRC that they are registered with CIS. Registration changes the percentage of the payment you deduct.
Each time you pay subcontractors, deduct 20 percent (registered sub-contractors) or 30 percent (non-registered) from their payments and pay the money to HMRC by the CIS filing deadline via your monthly return.
You must include all deductions on an HMRC CIS return and keep full accurate records of all CIS payments and deductions to avoid penalties.
You can find full details of HMRC’s requirements for CIS monthly returns on the Government website.
When you are preparing data for your monthly return, you must identify all payments to subcontractors in the relevant tax month. When you submit the CIS monthly return you must include details of all subcontractors you have paid. That includes the names of any subcontractors who are not liable to have tax deducted.
Your monthly return must include the following information for each subcontractor:
Subcontractor’s verification number.
Cost of materials paid to subcontractors.
Tax rate – 20 percent for registered subcontractors/30 percent for unregistered subcontractors/0 percent for subcontractors holding CIS gross payment status.
Amount of tax deducted.
If there is a tax month when you make no payments to subcontractors, you do not have to submit a standard CIS monthly return. Instead you must file a CIS nil return, ideally by the normal CIS submission deadline.
If you don’t file a nil return by the appropriate deadline, HMRC will assume that your normal monthly return is late and you will receive a penalty notice – see below.
If you think that you will not be using or paying subcontractors for an extended period, you should contact HMRC to make an inactivity request, stating that you have temporarily stopped using subcontractors.
If HMRC approve the request, it will last for six months and you will not have to submit CIS monthly returns or monthly CIS nil returns. However, you must notify HMRC if you start using subcontractors again during the six month inactivity period. You must then start filing monthly returns again.
You must file your CIS monthly return within 14 days of the end of the tax month, which ends on the 5th day of month. That means you must submit your monthly returns to HMRC for the previous month by the 19th of the current month following the last tax month.
For example, if you’re making a return for the period 6th May to 5th June, it must reach HMRC by 19 June.
If your monthly return is late, you will incur a penalty, which is levied at the following rates:
1 day late - £100.
2 months late - £200.
6 months late - £300 or 5 percent of the CIS deductions on the return, whichever is higher.
12 months late - £300 or 5 percent of the CIS deductions on the return, whichever is higher.
More than 12 months late – a possible additional penalty of up to £3000 or 5 percent of the CIS deductions on the return, whichever is higher.
If you disagree with a penalty, you can appeal within 30 days of the date of HMRC’s penalty notice.
HMRC will cancel the penalty if you let HMRC know that you did not make any payments to subcontractors during a specific tax month by filing a CIS nil return.
If you realise that you have made a mistake or wish to amend your monthly return, you can file amended returns using the HMRC online service or your approved commercial CIS software. Normal filing deadlines and payments do not apply to amended returns.
This is a brief outline of the Construction Industry Scheme and the process for making CIS monthly returns as a contractor. If you would like to discuss any aspect of the scheme or need help to complete or amend CIS monthly returns, our team of experienced small business accountants will be glad to help.
To find out more, please contact us on 0207 043 4000 or firstname.lastname@example.org.
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