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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.
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
If someone asked you right now how your business is doing, what would you say? In my experience, most business owners give a casual response about it being good and that’s that. After all, isn’t that what you are meant to say at a networking event? But if you were asked to prove why, would you know what to say? I’m talking about a proper explanation that can be backed up with up-to-date figures. Not just a gut feeling or guess.
This happened to me recently with my business coach. I was asked how things were going, and in true Graeme style I gave the usual line “yeah, everything’s good”. But then I was asked about my margin. I realised I didn’t know my figures, and I couldn’t back it up. I knew I was going to get a bit of a telling off, it’s exactly the sort of conversations I often have with my clients. Except this time it was me with the ‘oh sh*t’ expression on my face.
Whether you’re in construction, property development, or hospitality, you’ve probably had moments where you think things are going well, but deep down you know you’re just assuming. Just because you’ve got a fully booked restaurant or a few big jobs lined up and the bank account is looking half decent, it doesn’t always mean that your business is fine.
It doesn’t matter whether you run a chain of restaurants or a small building firm. You need to understand what your books are telling you. That means more than just a quick butchers at your bank balance or checking if payroll has gone out. It means knowing your income, costs, margins, cash flow, and upcoming outgoings.
The truth is, many business owners get caught up in the day-to-day. You’re managing staff, back and forth with clients, ordering in the stock or materials, and firefighting as problems arise. Before you know it, a few months have passed and you’ve not looked at your accounts properly. You don’t have a clue if that big invoice has been paid. You’re not sure which suppliers are overdue. And you definitely haven’t compared your actual profit to what you expected this quarter.
Running your business without understanding the financial side of things is like trying to build a house without the floor plans. You might get something that looks right, but underneath, it’s not sound.
One of my clients, a Manchester-based construction business, came to me after they hit a brick wall with cash flow. On paper, it all looked good. Plenty of jobs booked, staff on site, and invoices being raised. But when we took a closer look, we found just over £20,000 in unpaid invoices going back five months. Worse still, they’d taken on a new job that needed a lump sum paid upfront, without checking whether they could actually afford it.
There was no foul play or bad intentions. They were just busy and didn’t have a proper bookkeeping system in place to keep track of what was coming in, going out, and what was overdue. Nothing that a bit of structure and some regular reporting couldn’t sort out. Within a few months, I helped them back on top of their cash flow and better still, they knew exactly what each job was bringing in.
To keep your business running smoothly and make better decisions, there are a few key things you need to know at all times:
These are the basics. You don’t need a finance degree to understand them, but you do need systems in place to track them. Whether that’s decent accounting software or an experienced accountant who specialises in your industry. I can help with setting you up with the right software for your business, or if you need someone to look after your accounts month in month out, I can be that too.
Here are a few steps you can start straight away to get more control over your business:
Understanding your books isn’t about ticking boxes or staying on the right side of your accountant. It’s about putting yourself in control. When you know your margins, your costs, your forecasted income and your biggest risk areas, you can make better and more confident business decisions. Want to take on a new member of staff? Thinking of opening another venue or investing in new equipment? Your accounts will soon let you know whether you should, don’t rely on just a gut feeling.
It also gives you the peace of mind that you’re not just working hard, but working smart. Plenty of businesses look busy on the outside but are quietly leaking cash in the background. When you understand your finances, you avoid that.
If you’re a business owner in construction, property development, or hospitality, and you’re ready to stop blagging your way through the finances, let’s get it sorted properly.
I’ve got decades of experience in these areas, and I’m definitely a lot better at keeping on top of my clients’ books than my own. I’ll help you set up the right software, create simple dashboards and run regular reports. Most importantly, I’ll help make it easier to keep on top of your business and confidently answer what would normally be uncomfortable business questions.
We can have a brew, go through where you’re at, and get your business set up to run the right way.
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