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CIS Deductions and Payment to HMRC

As a CIS contractor, you can make deductions and pay subcontractors for construction work. This guide explains how to make a CIS deduction and pay deductions to HMRC.

As a rule, a mainstream contractor would need to make some deductions from subcontractors payments when they get paid.

HM Revenue and Customs will inform you the amount to deduct from the payments and when you need to verify subcontractors.

The current Construction Industry Scheme (CIS) deduction rates are:

  • 20% for all registered subcontractors
  • 30% for all unregistered subcontractors
  • 0% if the subcontractor has ‘gross payment status‘ (e.g. they do not have deductions made)

Note: CIS contractors must pay all the deductions to HM Revenue and Customs. The subtraction counts as an advance payment towards the tax and National Insurance bill of CIS subcontractors.

How to Make CIS Deductions

There are three basic steps for making deductions from a subcontractor’s payment. The first step is to determine the total (gross) amount of the settlement invoice.

Next, subtract the amount that the subcontractor has paid out for:

  • Consumable stores (equipment which is no longer usable)
  • Fuel used (except for travelling)
  • Manufacturing or prefabricating materials
  • Materials
  • Plant hire (equipment hired for this particular job)
  • Value Added Tax

The final step is to deduct the current CIS percentage rate (given to contractors by HMRC) from that amount. The figure you have left is the net amount that you need to pay to the subcontractor.

Paying CIS Subcontractors

In most cases, you will make direct payments to your subcontractors. Even so, there is a method for paying them through a ‘nominee’ or third party if they ask for it (e.g. a relative, a workmate, or a debt company).

You must give a payment and deduction statement to your subcontractor if you make any deductions. You would need to give them the statement within fourteen (14) days of the end of each tax month.

An Example:
Suppose your tax month ran from the 6th of May to the 5th of June. In this example, you would need to give the statement before the 19th of June.

Becoming ‘Inactive’ (not making payments)

In some cases, you can ask for a CIS scheme to become ‘inactive’. It could apply if you already know there will be no payments to any subcontractors for up to six (6) months. An inactive status would mean you do not get any returns from HM Revenue and Customs for that particular period.

Note: Use the Construction Industry Scheme (CIS) online service to become inactive. But, you must start filing returns when you begin paying subcontractors again (see below).

How to Pay CIS Deductions to HMRC

As a mainstream contractor, you will need to pay HM Revenue and Customs any deductions that you make. HMRC will set up a Construction Industry Scheme (CIS) payment scheme for you after you complete the CIS registration process.

HMRC would also change an existing PAYE Scheme to a PAYE/CIS scheme for any contractors with employees. You would need to make one payment each month or each quarter to cover CIS deductions, PAYE tax, and National Insurance.

When and How to Make Payments

CIS payments will need to reach HMRC account by the 22nd of every month (19th if paying by postal methods). Interest and penalties may get charged on any late payments when running payroll.

Note: You should pay Construction Industry Scheme (CIS) deductions to HMRC in the same way that you pay employers’ PAYE.

ALSO IN THIS SECTION

How to Register for CIS | Information on setting up as a new employer and verifying subcontractors.

Filing CIS Returns Online | How to tell HMRC each month about payments made to subcontractors.

CIS Contractor Deductions and Payment to HMRC in United Kingdom