If you’re a contractor or subcontractor, you’re likely to have some involvement with the Construction Industry Scheme. While it may seem straightforward when you look at the likes of CIS statements, there’s a heap of record-keeping behind the scenes!
Let’s explore the kind of records you should maintain, based on where you stand in the process.
What is CIS?
In a nutshell, CIS (Construction Industry Scheme) refers to the tax payments deducted from subcontractors’ gross pay (by the contractor who hires them) on a monthly basis. These payments are submitted to HMRC as advance payments towards the subcontractor’s tax obligations, which they in turn report on their Self Assessment tax return.
It can feel a little similar to PAYE, as income tax is collected by the contractor before the subcontractor is paid – a bit like an employer does for employees when they pay their wages.
Who needs to pay CIS?
Subcontractors have CIS deductions taken from their payments by the contractor who hires them. The contractor reports these deductions to HMRC through monthly CIS returns, and pays the deductions on their behalf.
It’s mandatory for contractors to register for CIS, but optional for subcontractors, although deductions are made higher at a higher rate for subcontractors that aren’t registered. We go into this in much more detail in our CIS blog that discusses who is expected to register and how it works.
What records do I need to keep as a subcontractor for CIS?
Each month you work for a contractor, you should receive a monthly CIS statement which shows how much you earned and how much was deducted under CIS . You’ll need to keep all of these statements as a reference for when you complete your Self Assessment at the end of the tax year. HMRC use this information to check you’ve paid the right amount of tax, or whether you’ve overpaid and need a refund, or underpaid and owe them more.
It’s very common for subcontractors to pay more tax than they owe, so it’s even more important to make sure your tax return is accurate, and that you submit it early so you can claim back what you’re owed as soon as possible.
There is a CIS figure box where you can enter the total CIS deductions taken from your gross pay throughout the tax year.
If they’ve stopped trading, or you simply can’t get in touch with them, you need to write to HMRC.
What is a CIS statement?
If you’re a subcontractor, the contractor/s you work for will give you a CIS statement as written proof of any tax deductions they’ve made. Like a payslip, it’ll include your gross pay, the deductions made, and your net pay (your pay after tax).
What records do I need to keep as a contractor for CIS?
In order to submit monthly CIS returns under the Construction Industry Scheme, you’ll need to keep records of:
- Deductions you’ve made from your subcontractors’ payments
- The gross amount from each payment invoiced by any of your subcontractors (not including VAT)
- Records of the costs of any material subcontractors have invoiced you (again, not including VAT)
- The details of each subcontractor you work with, including their UTR number
There’s a lot of responsibility placed in the hands of a contractor. As well as ensuring you’ve taken CIS from subcontractors accurately, you need to keep HMRC up to date with all of the payments and let them know about any changes made to your business.
Keeping your financial reports up-to-date and accurate is crucial, and efficient bookkeeping software can ease the stress so you can keep everything in one place.
Using cloud-based bookkeeping software can make the process easier, and keep your records safe for as long as you need them!
Are there any penalties if I lose any CIS documentation?
If you’re a contractor, you could be asked by HMRC to provide your CIS records at any time. Failure to do so could result in you being fined up to £3,000.
Whether you’re a contractor or subcontractor, you need to keep your financial records organised. Sign up today for your free Pandle account and see how we can help you.