Symptoms include confusion, difficulty sleeping and fear of fines…
Any trade business that uses subcontractors in the United Kingdom is faced with the headache that is the Construction Industry Scheme (CIS). In short, this is where deductions are taken by HM Revenue and Customs (HMRC) as advanced payments towards the subcontractor’s income tax and National Insurance payments. Lynelle Hills, UK Managing Director at simPRO Software, explains the process and what is being done to relieve symptoms.
Providing HMRC with the necessary data relating to CIS every month can be complicated for everyone involved: contractors, subcontractors, and even accountants and bookkeepers. All data provided – subcontractor verification numbers, deduction rates, and deductions – must be accurate, and failure to provide accurate information can result in the higher rate deduction being applied, or worse – fines.
Contractors Contractors who use subcontractors are obliged to deduct money from subcontractors’ payments to pass to the HMRC. Contractors are consequently faced with administrative burden; they have to make sure they are:
• checking the tax status and deduction rate of each subcontractor working for them
• deducting the correct rate of tax from the labour portion of each invoice
• reporting and paying the correct amounts to both the subcontractor and the HMRC within the given monthly timeframes.
Any administrative errors can result in fines as well as a subcontractor not having the correct amount of tax reported or paid.