CIS TAX Registration and Returns
What is CIS
CIS is the abbreviation for Construction Industry Scheme. This is HMRC’s way of collecting income tax from people who work in and around the construction industry as contractors rather than employees. Contractors in the construction industry often hire independent contractors to work with them on projects, rather than hiring staff.
Historically, many construction workers were paid in cash and no taxes were paid to HMRC on their earnings. The CIS wants to reduce this problem by taxing the income of subcontractors as soon as the contractors pay them.
For example, if a construction company has subcontracted work to a mason. The mason sends an invoice to the construction company for the work done. The construction company pays you, but withholds a certain portion of the CIS tax and remits it to HMRC.
How CIS Works
The CIS has nothing to do with staff payments. They are covered by the Pay As You Earn (PAYE) scheme, with taxes deducted at source. The CIS covers payments made by contractors to subcontractors.
Subcontractors must pass three tests to receive payments:
- Business Test: Prove that your business is construction work
- Proof of Billing: Billing must be greater than £ 30,000 for each administrator, up to £ 100,000 or more
- Proof of Compliance: Tax matters must be in order and payments must be made on time. You must also be registered with HMRC to receive payments.
If you have not passed one of these tests, you may be able to register with HMRC to pay taxes at the lowest rate (20%).
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