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The Construction Industry Scheme (CIS) can present unique challenges for both contractors and subcontractors. As an accountant, your role is crucial in helping clients navigate the complexities of CIS compliance, ensuring that they avoid penalties and maintain accurate records. Here are seven key tips for accountants managing CIS clients:
1. Understand the CIS Basics
Before diving into the more intricate details of CIS, it’s essential to understand the scheme’s core principles:
Contractors: Are required to deduct tax from subcontractors’ payments and pass it to HMRC.
Subcontractors: Can have deductions made from their pay, but these can be offset against their tax liabilities. Ensure that your clients are registered with HMRC as either contractors or subcontractors, depending on their role, to avoid issues such as higher tax deductions or penalties for non-compliance.
2. Verify Subcontractors Properly
One of the most important aspects of CIS compliance is ensuring that subcontractors are properly verified with HMRC before any payments are made. This is crucial because:
Subcontractors that are not verified are subject to a higher deduction rate of 30%.
Verified subcontractors have a standard deduction of 20%, and if they are registered for gross payment status, they receive their pay without deductions. Use HMRC's CIS online service or phone verification to confirm each subcontractor’s status.
3. Record-Keeping is Non-Negotiable
For both contractors and subcontractors, meticulous record-keeping is essential under the CIS. Contractors must maintain records of:
Payments made to subcontractors.
CIS deductions.
Subcontractor verification references.
For subcontractors, maintaining records of all payments received and CIS deductions is critical to accurately reclaim any overpaid taxes at the end of the tax year. Help your clients establish a solid system for logging payments and deductions to avoid discrepancies during audits or tax returns.
4. Submit Monthly CIS Returns on Time
As part of the CIS, contractors must submit monthly returns to HMRC detailing:
Payments made to subcontractors.
The amount of CIS deducted.
This needs to be done by the 19th of each month following the end of the tax month. Missing a CIS return or filing inaccurate information can lead to penalties, so it’s crucial to set up automated reminders or workflows to ensure timely submission. Be thorough in reviewing the data before submission to avoid unnecessary errors.
5. Handle CIS Deductions Accurately
Contractors are required to deduct CIS at the correct rate from subcontractor payments, excluding the cost of materials. Ensuring that CIS deductions are calculated only on labor (and not on materials or VAT) is essential. Miscalculations can lead to underpayment or overpayment, which can result in penalties or issues reclaiming over-deducted amounts.
Encourage clients to use software or digital tools that simplify these calculations to avoid costly mistakes.
6. Help Subcontractors Claim CIS Refunds
Subcontractors often end up overpaying taxes due to CIS deductions, especially if they have not reached the income threshold for the full tax year. As an accountant, ensure that subcontractor clients:
Maintain accurate records of CIS deductions.
Correctly file their annual Self Assessment tax return, which will account for the CIS deductions made.
Work closely with subcontractors to ensure they reclaim any overpaid tax promptly, helping them with cash flow and avoiding the frustration of delays in tax rebates.
7. Advise on Gross Payment Status
Subcontractors may benefit from applying for gross payment status, which allows them to receive their payments without any CIS deductions. To qualify, the subcontractor must demonstrate:
Good tax compliance history.
Meet the minimum turnover threshold.
Provide accurate business records.
Advise subcontractors who meet these criteria to apply for gross payment status, as it can significantly improve their cash flow by allowing them to manage their tax liabilities at the end of the year, rather than having CIS deductions made upfront.
Managing CIS responsibilities can be complex for businesses within the construction industry, but with the right systems and strategies in place we can simplify the process and ensure full compliance. Whether it’s accurate record-keeping, timely returns, or helping subcontractors reclaim overpaid tax, supporting our clients effectively in this area can save time, money, and avoid potential penalties.
If you’re looking for tailored support or need help navigating the complexities of CIS, our team is here to provide guidance and ensure your business remains compliant.
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