- 08 Feb 2018
- Comments Off on What is CIS deduction?
Running a business in the UK might be considered smooth sailing, but it’s not a process devoid of formalities and responsibilities. This is, of course, very important to keep track of in order to make sure everything is running in accordance with legal regulations. One of those that is relevant to construction work in particular, is the CIS.
What is CIS and who does it affect?
The Construction Industry Scheme (CIS) is a regulation that determines how much money is deducted from a subcontractor’s payments to be passed to HM Revenue and Customs (HMRC). The scheme covers all construction work carried out in the UK. Jobs that are covered by the CIS include:
- site preparation
Keep in mind, however, that this is only a factor for construction work carried out within the UK.
What types of business are covered by CIS?
If a business functions in the construction industry, no matter what type of business it is. Whether it’s a company, partnership, or if you’re self-employed, CIS covers it. There is also the possibility that a business is based outside of the UK but operates within the UK. In those cases, the business types covered by CIS include:
- Contractors and Subcontractors
Contractors are businesses or other parties that pay subcontractors for the construction work they carry out.
Why is the CIS scheme in place?
Because of the CIS, contractors deduct 20 to 30% from a subcontractor’s payments and pass it HM Revenue & Customs. This carries many benefits and counts as an advance payment to the subcontractor’s tax and National Insurance (NI). This can all be claimed back from HMRC after the tax year end on April 5th.
Registering for CIS with HMRS is a necessity for all contractors, and the same is true for subcontractors who are self-employed, own a limited company or are a partner in a partnership. In order to register for the CIS, your business will need to undergo a number of tests, including a business test (that indicates that your business does construction work in the UK), turnover test (that asserts whether your business has a high enough turnover), and a compliance test.