Contractors registered under the Construction Industry Scheme (CIS) are required to deduct the following tax from their payments to subcontractors:
- 20% deduction (if the subcontractor is registered for CIS); or
- 30% deduction (if the subcontractor isn’t registered for CIS).
These deductions are paid by the contractor to HMRC as an advance towards the subcontractor’s tax liabilities.
Alternatively, the subcontractor can apply for gross payment status. This means contractors will pay you (or your limited company) in full, without deductions.
If you’re a CIS subcontractor working through your limited company, any CIS deductions made by a contractor from income due to the company is offset against the company’s Corporation Tax liability, or refunded directly to the subcontractor by HMRC at the end of the tax year.
The relationships between these transactions are complex, and we’ve broken them down into various situations your limited company may come across.
Your limited company is the subcontractor only
You work for a contractor who pays your limited company (as a CIS subcontractor) and deducts either 20% or 30% for CIS payments. Your company does not, itself employ any subcontractors as part of this arrangement.
The main contractor must file a monthly report to HMRC showing the deductions made for all its subcontractors, including your limited company.
Your limited company will then include the CIS amount deducted by the contractor through the Employment Payment Summary (EPS) your company must submit to HMRC throughout the tax year as part of its PAYE arrangements.
Once the tax year is ended and the Final Payroll Submission (FPS) has been made, your limited company must complete an online form using your government gateway account. HMRC will then use the amount of CIS deductions made by the contractor you worked for to reduce your company’s Corporation Tax liability. If there’s any CIS credit left over, this will be refunded to the company.
Your limited company is paying subcontractors
Your limited company is paying subcontractors to do work. None of the work is for another contractor.
Your company must complete a monthly report to HMRC providing various information, including the amount of CIS deducted from your subcontractors. The report needs to be made for individuals and businesses you employ as CIS subcontractors.
Your limited company pays all the deductions made over to HMRC in the same way as other PAYE taxes are paid.
Your limited company is working for a contractor and is paying subcontractors
Your limited company provides services to a contractor, and uses subcontractors.
In this situation, you will need to combine the two previous scenarios:
- The contractor will make the necessary CIS deductions from its payments to your limited company
- Your limited company will make the necessary CIS deductions from the payments it makes to its subcontractors
- The amount your limited company is due from, or is due to pay to HMRC will be the difference between these amounts.
The position is summarised below.
|CIS deducted by the contractor
||CIS your limited company deducts from payments to its subcontractors
||Amount your limited company is due from (or due to pay to) HMRC
||£5,000 credited to your HMRC account
||(£5,000) to be paid to HMRC
How can Crunch help?
Crunch has a CIS service which has been designed to streamline the whole process for contractors and subcontractors working in the construction industry. Just sign up, send us your information every month and we’ll take care of the rest. Find out more about the Crunch CIS scheme.