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The UK’s Construction Industry Scheme (CIS) is more than just tax stuff. It’s the lifeline of your construction gig. Born in 1971 to outsmart the tax dodgers, CIS has become this big, complex beast that every contractor and subcontractor needs to tame.
Think of this guide as your handy map through the CIS jungle, helping you sidestep pitfalls, dodge hefty fines, and stay cool under HMRC’s watchful eye. We’re here to break down the tricky bits and show you how the right tech can make CIS a walk in the park.
The Construction Industry Scheme (CIS) is a tax deduction scheme involving payments made by contractors to subcontractors in the UK construction industry.
Originating in 1971 to combat tax evasion, CIS has undergone various transformations, the most significant in 2007, to include more stringent requirements for contractors and subcontractors.
Under CIS, contractors deduct money from a subcontractor’s payments and pass it to HMRC, counting as advance payments towards the subcontractor’s tax and National Insurance.
It sounds simple, doesn’t it? In reality, CIS is complicated. Get it wrong, and you could be in for a big bill. Or even worse HMRC poking their nose into your business and having a big dig around. From experience you don’t want HMRC having a rifle through your business affairs!
I’m going to get real with you for a moment. When new construction clients come to us, sorting out CIS mistakes and problems is probably our biggest money spinner. You could also say we are rather good at unpicking CIS problems…
CIS, while essential for tax compliance, presents numerous challenges:
Navigating CIS in the UK construction sector is crucial for tax compliance, but pinpointing which activities fall under its umbrella can be tricky, especially for property investors and developers. Sometimes us accountants even need to take advice on this.
For instance, property investment typically stays outside CIS unless construction spending surpasses £3 million within 12 months.
This means that careful monitoring of expenditures is essential to ensure compliance and avoid unexpected tax obligations. Yes, it’s the boring accountant in me coming out again. Good record keeping is not optional. It’s crucial to help you save money and make sure you keep your accountant happy.
The contract’s nature significantly influences CIS applicability. Mixed contracts, blending CIS and non-CIS work, necessitate a thorough analysis. I’m giving my age away here, but I’ve been in the building trade for 30-odd years. Yes, I did start in the working world when I was very young. It’s fair to say ‘it’s grim up north’. Anyway, I digress, contracts in the construction industry are always changing and evolving. This a long way of saying, get advice! (Hint: we can help)
Understanding each contract’s intricacies is crucial to avoid non-compliance risks and financial consequences.
In our experience, determining whether an activity is subject to CIS is a common hurdle for many in the construction and property sectors. Assumptions often lead to issues. Then issues often leads to large unexpected tax bills or, once again HMRC starting to poke their nose into your affairs. The only nose you want poking into your affairs is your accountants to help you run your business and keep your financial processes running smoothly!
One of the classic mistakes I see construction company owners make is win a contract and then just get started with it; rather than considering whether the lad (or person) you are taking on to support you with the contract is an employee or CIS contractor. For example, if you keep your best plasterer busy for a whole year and don’t work for someone else, HMRC could decide that they are an employee. There are legal ways to get around this problem, but get in touch for how we can help.
It’s vital to get expert advice to ensure your business aligns with CIS regulations, translating into smoother operations and a lower risk of penalties.
Failure to register with HMRC can lead to significant fines. Non-registered contractors and subcontractors face steeper tax deduction rates and additional penalties. For example, if you are a cleaning company, then your cleaners actually come under the CIS scheme. Funny fact, not many accountants know this. And yes, I can be a real bore at parties…
Staying up-to-date with the latest CIS rules is not just good practice; it’s a critical defence against non-compliance’s financial and operational impacts.
All payments to subcontractors, including those with gross payment status, must be meticulously reported in monthly CIS returns. Investing in robust record-keeping systems is advantageous, ensuring accuracy and compliance.
This means staying organised simplifies reporting and protects against potential discrepancies and penalties.
The revenue love fining construction companies. Failure to get your CIS scheme right and the revenue will happily fine you £100 a month per return that isn’t filed. The evil people they are is that if you fail to file your CIS return each month for 12 months, they will fine you £1200 up to a maximum of (at time of writing) of £7800. This really can kick you in your ‘backside’ if you get this wrong. I have successfully got these penalties cancelled. But don’t chance it; it needs strong mitigating evidence to cancel penalties. If I had a pound for every time I saw construction companies filing to get their CIS reporting done on time and correctly, I’d now be on a beach in Marbella sipping a cold beer.
Correctly identifying the employment status of subcontractors is a crucial task for contractors. Errors in classification can lead to unexpected tax and National Insurance liabilities.
Diligent evaluation of each subcontractor’s status isn’t just about meeting CIS requirements; it’s a key aspect of maintaining financial health and regulatory compliance.
What Work is Subject to CIS, and What Work is Exempt?
Understanding what falls under CIS is vital. Generally, CIS covers most construction work, including site preparation, alterations, dismantling, construction, repairs, decorating, and demolition.
Exemptions include:
Professional Services: Roles like architects, surveyors, and some engineers and consultants.
Material Manufacture and Delivery: These are outside the CIS scope.
Non-Construction Site Services: Like canteen or facilities management.
Specific Exemptions: Work paid for by charities, educational bodies, or on the subcontractor’s own property under certain conditions.
Please find the list of exceptions on the HMRC website here.
A plea for you, don’t guess with this stuff. Take advice from an accountant who knows their way around the CIS scheme. The one short phone call to your accountant could save you lots of money in the future.
If you are in the middle of a chain of contractors, subcontractors and subcontractors, CIS gets a little more complicated. Very simply, don’t guess, give us a call and we will sort you out.
Gross Payment Status enables subcontractors to receive full payment without initial deductions. Qualification requires passing business, turnover, and compliance tests.
Benefits for subcontractors include improved cash flow and simplified tax management, though rigorous adherence to tax obligations is necessary to maintain this status. As I have mentioned a few times penalties for getting this wrong can be onerous. I don’t care if I am repeating myself again (sorry, not sorry), but using Gross Payment status means contractors don’t get penalised if you get it wrong.
Modern CIS-compatible software addresses various CIS challenges:
CIS-compatible software automates the verification of subcontractors with HMRC, ensuring they are registered and eligible for work under CIS.
This automation extends to the accurate calculation of tax deductions, significantly reducing the likelihood of errors.
This means contractors can focus more on their core business activities, knowing their tax compliance is accurately managed.
These tools simplify the administrative workload by maintaining detailed transactions and subcontractor payment records.
They facilitate generating and submitting accurate monthly returns, ensuring they meet HMRC’s deadlines and requirements.
Efficient record-keeping is crucial, as it streamlines submissions and provides a reliable audit trail in inquiries or inspections.
CIS software actively monitors compliance, providing timely alerts for upcoming deadlines and notifying users of legislative changes that might affect their operations.
This proactive approach ensures that businesses remain compliant and are not caught off-guard by new regulations or reporting requirements.
It also offers real-time access to data, allowing businesses to closely monitor their payments and compliance status, which is essential for effective financial management and planning.
Integrating CIS operations with other financial aspects like VAT and payroll is another key feature of modern software.
This integration streamlines overall financial management, reducing the effort and time required to reconcile different accounting areas.
By aligning CIS with broader financial operations, businesses can achieve more cohesive and efficient financial management, leading to better-informed decision-making and a more comprehensive view of the company’s financial health.
We offer as a service for our clients to do CIS payroll, CIS filing and verifications to help take one of the headaches off your long to-do list. After all, why guess when we can help keep you and your business on the right side of HMRC. We also have a cost-effective service for your CIS contractors to help them legally keep their records, maximise their tax refund, and file their tax returns each year.
As a contractor in the construction industry, CIS registration is crucial for compliance and smooth business operations. Register today to avoid penalties and streamline your subcontractor payments.
Subcontractors, while not mandated to register, can benefit from lower tax deductions by registering. Don’t miss out on this financial advantage.
Need guidance? Reach out to us at Cloud Accountancy for expert advice on CIS and its impact on your business.
Call us on 01617 985789
Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb
Register now and ensure your business is compliant and efficient.
If you’re running a business in construction, property, or hospitality and trying to borrow some money to help you grow, chances are you’ll hit a wall: the bank says no.
You’re expanding your team, taking on bigger projects, or investing in equipment, and you need funding to do it properly. But when you go to the bank for a loan, they either make it really painfully difficult or just give you a flat out refusal.
If you’ve been turned down, or suspect it’s coming, don’t worry. There are plenty of ways to get your hands on the cash you need to grow your business.
Here’s how to make your business more attractive to lenders and what to do if they still say no.
These days, banks want your accounts to be squeaky clean, they want to see a proper business plan and security for the money you are borrowing and even then they might still say no. It’s not how it used to be when you could just rock up to the bank and walk away with a loan.
If you want half a chance at the bank today, you’ve got to show them a business that’s financially sound, well-managed, and with a bit of cash behind it.
Here’s how to make your business look more appealing to the bank or a lender.
If you want to be considered by lenders, you need to make sure your bank looks healthy. Here’s a few ways to top up your cash reserves:
Liquidate unused assets – Got old equipment collecting dust, or a spare bit of land that could be worth something? These sorts of things can all add-up.
Refinance equipment – If you’ve bought plant or machinery outright, refinancing can release cash. Just remember, it’s still debt so use it wisely.
Remortgage property – Got premises in your name? A remortgage could give you a lump sum. But if it’s tied to your home, tread carefully. It could be risky business with contract delays or the wrong sort of client.
You might be serious about getting funding, but will the lender take your business seriously? Here’s how to make sure they do:
Up-to-date books – This one is pretty straightforward. Messy books are a big red flag to lenders. Make sure your accounts are well-organised.
Financial analysis – Know your margins. Know your break-even. Know your numbers. It’s not just for the lender. It’s for your own peace of mind too.
Cashflow forecasts – Lenders want to see that you can manage the day-to-day without running dry. Forecast at least 12 months ahead.
Revenue and profit projections – Prove to lenders that you’ve got a plan in place to make more money. Show them what’s coming in, what’s going out, and how it stacks up.
Business plan – A good well-structured business plan is going to be your best bet when it comes to convincing lenders to give you a loan.
Sometimes, lenders might ask for a guarantor. If this isn’t you personally, this is basically someone who promises to pay back the loan if you can’t. It’s a big ask, so choose wisely.
It’s worth keeping in mind that guarantors aren’t charities. They’ve got to protect their own interests, so they could ask for some form of security, such as a personal guarantee or even a share in your business. It’s important to be aware of all the potential implications before involving a guarantor in your finances.
Beyond bank loans, there are other options you could consider for financing your growing business. These are:
Government grants – They’re out there, and some are industry specific. Free money is rare, but it’s certainly worth looking into.
Alternative lenders like Funding Circle – More flexible than traditional banks. Faster decisions, sometimes fewer hoops. I know a few good ones I can recommend, get in touch.
Crowdfunding – Not typical for construction or property, but if you’ve got a community-focused project or niche idea, it’s an option.
Venture Capital or Private Investment – If you’re building a high-growth business, investors might be interested. But they’ll want a piece of the pie and a return. Make sure it’s a deal you’re happy with.
It’s not one I recommend lightly, but in the right situation, it might be handy.
If you’ve got money set aside for VAT or corporation tax, and you need that cash now, HMRC might agree to a payment plan. It’s not guaranteed, there’s usually interest involved, and they’re not always easy to deal with. But if it helps fund a project that’ll bring in profit, it could be worth it.
Just don’t overdo it. You don’t want HMRC breathing down your neck down the line.
There’s no one-size-fits-all when it comes to business finance.
What works for a construction firm won’t suit a hotel chain, or a developer. The finance needs might look similar on the surface, but the finer details are what makes or breaks the deal. And that’s why tailored advice matters.
You need to understand:
And to be blunt, that’s not something you’ll get from a generic online application or a blog post written for everyone and no one.
I’ve worked with businesses across construction, property and hospitality for decades. I know the difference between short-term cash flow stress and long-term profitable growth. I also know when to tell you a funding option looks good on paper but is going to be a nightmare six months down the line.
If you’re not sure what’s the best route forward, whether the bank’s said no or you’re just weighing up your options, let’s have a proper conversation.
Interested to find out more?
Call us on 01617 985789
Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb
Taxman knocking? And not knocking quietly? Here’s how to handle an HMRC investigation:
Ever had that sinking feeling when a brown envelope with ‘HMRC’ stamped on it lands on your doormat?
It’s a similar feeling to how I feel when Man City are 2-0 up at half-time and then the opponents score a hat-trick in the second half. It’s that same stomach sinking feeling.
Now, you know you should open that HMRC envelope. You also know it’s not a surprise tax rebate. Best-case scenario, it’s a change in an employee’s tax code. Worst case? You’re being investigated. That feeling of dread is justified.
So, what do you do if HMRC is on your case and asking uncomfortable questions? I’ve helped clients across the construction, property, and hospitality sectors handle this, and while every case is different, the advice is always the same. Let me take you through it.
Understand why they’re here
Before sending a panicked email that doesn’t make sense, or trying to explain yourself over the phone, stop and try to work out exactly why you’ve attracted HMRC’s attention.
Once you know, you can start planning your response. Being upfront with me at this stage is key. If you try to brush things under the rug, whether with me or HMRC, it could get messy. And fast.
Maybe you already know why they’re sniffing around. If so, don’t ignore it. Delaying only makes things worse. I’ve seen cases go all the way to court, and believe me, it’s no picnic. Stressful doesn’t even begin to cover it.
Once you know what’s triggered the HMRC investigation, you’re in a stronger position to deal with it properly.
Be cooperative
No one enjoys feeling like they’re being interrogated. But you’ll get nowhere being defensive or evasive.
HMRC inspectors want answers. Give them what they ask for, honestly and promptly. That includes emails, invoices, receipts, payroll info, VAT records, your dog’s birth certificate (wouldn’t be surprised)… anything they’ve requested.
Now, if I can demonstrate that you’ve been fully cooperative, it can actually work in your favour. The more helpful you are, the less friction is involved. As your accountant, If I can show that you have been cooperative, this could reduce any penalties that the tax man wants to make you pay and make it a smoother process.
Seek professional help
If you’re feeling out of your depth, don’t try to wing it. Get someone in your corner who knows how to handle HMRC investigations. That would be me.
As a tax advisor with experience supporting businesses in construction, property, and hospitality, I can help you:
I can also be your shoulder to lean on when things feel a bit much. Let’s be honest, sometimes you just need someone to reassure you it’s going to be alright.
Pick your accountant carefully. Make sure they’re up to date with current tax regulations (CIS, VAT reverse charge, especially if you’re in construction), and that they’ll actually pick up the phone when you call.
Proactive measures to avoid investigations
Want to avoid HMRC knocking at your door altogether? Simple: stay on top form.
Here’s how:
This is where having an accountant that’s switched-on helps. I keep tabs on the latest updates so you don’t have to.
Additional tips:
By following these tips, you can increase your chances of firstly avoiding a HMRC investigation in the first place and then getting a successful outcome.
Interested to find out more?
Call us on 01617 985789
Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb
You’ve probably been hearing about Making Tax Digital (MTD) for the past couple of years now. Maybe you’ve buried your head in the sand a bit, hoping it might all blow over. If that’s the case, I’ve got some bad news for you, it hasn’t. It’s not going anywhere and it’s changing the way businesses keep their records and submit tax returns.
There is a but. As a business owner you’ll know what I mean when I say like most things, once you’ve got the right set up, it’s manageable. It’s the same for everything.
In one of my previous articles I’ve gone through everything you need to know about MTD, and what it’ll cost you if you don’t. But this time it’s all about why you need proper MTD-compatible software and what your options are, especially if you’re in construction, property, hospitality, or you’re a self-employed doctor or dentist.
Let’s just touch on the basics. MTD is HMRC’s plan to make the UK tax system more efficient and easier for taxpayers to get right.
Basically, no more stuffing receipts in a folder or filling out a spreadsheet once or twice a year. Instead what you’ll need to do is:
MTD for Income Tax Self Assessment (ITSA) is coming in April 2026 for self-employed people and landlords earning over £50,000 a year, and in April 2027 for those earning over £30,000. That’s tomorrow in tax terms.
So, if you’re still manually keying things in at year-end or passing your accountant a wad of receipts, it’s time to upgrade.
The thing is MTD isn’t just about doing things online. You need to use approved, compatible software that talks to HMRC’s systems.
Take it from me, the sooner you switch, the smoother your tax life becomes.
The right software will:
You can forget about using your personal bank account and hoping for the best. Now you need to get a proper business bank account that feeds directly into your accounting software. It keeps everything clean and makes both your life and mine (and HMRC’s) ten times easier.
Not all software is the same. Some are more complicated than they need to be, some are overpriced and some of them just aren’t fit for purpose.
Here are a couple we regularly recommend to our clients:
If you’re with NatWest, Royal Bank of Scotland and others, you may already have FreeAgent included as part of your account. That’s a win.
It’s a solid MTD-compliant platform, with:
Great for small business owners, freelancers, and contractors who want to keep things simple but compliant.
LimeBooks is a newer option but a great one. It’s low-cost, easy to navigate, and fully HMRC-approved for MTD VAT and Income Tax.
We like it for:
It’s ideal if you’re self-employed, especially in construction or property where margins are tight and you don’t want to pay for bells and whistles you’ll never use.
If you’re already using something else, it’s not a problem. Maybe you already use software like QuickBooks or some other setups, and that’s fine. We’re not here to force you to switch if what you’ve got works.
The main thing is that it’s MTD-compliant and helps keep your records accurate. If you’re managing your own books and it’s all ticking along nicely, we’ll support that.
I’m no software snob, I’m just here to make sure you’re compliant and not heading towards a nasty fine from HMRC.
Whether you’re running a hospitality venue, managing property portfolios, overseeing a building site, or running your own dental practice – MTD applies. The admin might look a bit different, but the rules don’t change.
Construction: You’ll likely need MTD-compatible software that can handle CIS deductions, VAT reverse charges, and project-specific costs. FreeAgent or QuickBooks are good for this.
Property: Landlords need to track rental income, repairs, and mortgage interest. MTD for ITSA will apply from 2026 if your property income is above £50k.
Hospitality: Pubs, restaurants, hotels, you’ve got VAT, tips, staff wages, and stock. Integrated POS systems and a good bookkeeping platform can save you hours.
Self-Employed Doctors/Dentists: You’ve got a mix of NHS and private income, and likely a combination of bank accounts and payment processors. MTD-compliant software brings it all into one place. And keeps you from getting overwhelmed at tax return time.
Don’t wait for HMRC to send you a reminder. MTD isn’t going away, and the fines for non-compliance won’t be friendly. Trust me.
Set yourself up with:
Not sure which software is best for you? I can talk you through the pros and cons over a brew, help get you set up, and keep you on track all year, not just at tax time.
Interested to find out more?
Call us on 01617 985789
Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb
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