Understanding and Mastering the Construction Industry Scheme

Blog Author:

Graeme

Post Date:

15 January 2024

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.

What is the Construction Industry Scheme?

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!

The Complications of CIS

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:

Identifying CIS

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.

Understanding Contractual Nuances

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.

Defining Scope

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.

Registration and Compliance

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.

Monthly Reporting

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.

Employment Status Verification

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.

Reverse charge CIS

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.

CIS and Gross Payment Status

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.

How Can CIS-Compatible Accounting Software Solve the Problem?

Modern CIS-compatible software addresses various CIS challenges:

Automated Verification and Tax Calculations

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.

Efficient Record Keeping and Monthly Returns

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.

Compliance Monitoring and Access to Real-Time Data

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.

Integration with Broader Accounting Functions

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.

Should You Register for CIS? Act Now!

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.

 

Other News

10 June 2024

How to build your business (not your workload)

You all want your firms to thrive, don’t you? It can be a right handful sometimes, you know the feeling. You want to see it grow, not leave you feeling like you’ve been chasing your tail all day.

The key is taking control of your time, use it like a bag of gold. Here’s a few tips on how to do that…

  • Invest in the right practice management tools

Let’s talk about simplifying your operations to get things running a bit smoother. We’re looking to identify any problems in your current processes, there’s always room for improvement.

On that note, one of the best ways to increase productivity is to invest in some decent practice management tools. We’re talking software that’ll make dealing with clients, working as a team, keeping track of jobs, and the day-to-day grind a whole lot easier.

  • Prioritise high-value work

To stop spending so much time faffing about, start prioritising effectively. Use the Urgent Important Matrix to do this.

Group your tasks into 4 quadrants:

  • Q1: Urgent and important – these are emergencies that arise (e.g. missed deadlines, client complaints, technical failures, pressing problems etc).
  • Q2: Important but not urgent – these are the tasks you need to do to grow your business (e.g. goal setting, growth planning, networking, self-development, business development etc).
  • Q3: Urgent but not important – these tend to be interruptions that take up the majority of your time (e.g. phones, texts, emails, unproductive meetings and reports etc).
  • Q4: Not urgent and not important – these are distractions that cause you to procrastinate and have no value to your business (e.g. personal phone calls, social media, excessive or irrelevant emails etc).

Once you’ve grouped your tasks, you’ll know what you need to focus on and what you need to avoid.

  • Delegate low-value work

Now you have identified tasks that need to be done, delegate the low-value work to your team so that you can focus on the ones that require your level of skill.

If you delegate effectively (i.e. delegating authority as well as tasks), you can take a step back knowing the day-to-day stuff is running smoothly. This frees you up to focus on the real game-changers, the things that’ll make the firm grow.

  • Schedule time in the diary for business development activities

You need to invest more time in quadrant 2, doing the planning and budgeting and development activities that will grow your firm. It’s easy to forget things in the daily grind, chaps. Schedule those important jobs – it’s the best way to ensure they get done.

If you prioritise these tasks and appoint the rest, you’ll have time tosit down with a cuppa, and focus on them. You just need to find the days and times where you can work productively and without any interruptions.

Build your business

It really is as simple as that. To build your business, not your workload, you need to follow these 4 steps. When you do these consistently, you’ll find that each day follows a more chilled approach:

  1. DO – those important tasks that need to be done today.
  2. SCHEDULE – the important but not so urgent tasks, so that they will get done.
  3. DELEGATE – the urgent but not so important tasks.
  4. AVOID – the non-urgent, non-important tasks.

Interested to find out more?
Call us on 01617 985789
Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb

24 May 2024

How to recover from career burnout

Alright, career burnout. It’s no mystery, is it? It’s when you’ve worked yourself into the ground at your job. You graft away until there’s nothing left in the tank. Like a faulty kettle, you can’t even manage a flick of the switch to make a cuppa, never mind a whole day’s work. All you’re left with is a strong feeling of “can’t be bothered” and the desire to throw in the towel.

The dreaded burnout looks a bit like this…

  • Feeling constantly tired and drained.
  • A lack of enthusiasm and motivation for anything.
  • Anxiety and worrying about everything.
  • Insomnia, loss of appetite, and depression
  • A loss of confidence in yourself.
  • Getting sick more often and for longer.

Why does it happen?

Career burnout can happen for several reasons. Here’s the long and short of why you might be feeling like you’re going through the motions at work:

  • It’s not the job for you anymore: You’re stuck in a role that’s about as exciting as watching paint dry. No sense of purpose, just going through the motions.
  • Lost your mojo: Remember when you first started? Buzzing with ideas and raring to go? Now, all you feel is a big fat “meh”.
  • Stuck in a rut: Same old job, same old people, same old problems. You feel like a hamster on a wheel, going nowhere fast.
  • Company culture makes you want to stuck your head in the sand: You don’t fit with the people you work fit? It really makes coming to work a proper nightmare.
  • The pandemic played havoc: Let’s be honest, the whole thing was a right mess! Made a lot of us re-evaluate our lives and jobs. And if not us, our families have and push these beliefs our way. No wonder some of us are feeling a bit worse for wear.

How to recover from burnout

If you suspect you’re experiencing burnout, don’t just grin and bear it. See it as a chance to get to the bottom of things. Once you figure out why, you can make some proper changes that will get you back on your feet. Here’s a few things to get you started:

  1. Identify the cause of your burnout – what’s the culprit? Does the job itself feel like a waste of time, or maybe it’s the people you work with? Does the job give you that buzz? Fit in with your life? Take a look at potential external factors too.
  2. Start making changes – Get a pen and paper, make a list, or use a fancy online tool like these youngsters do these days. Is an entirely new career on the cards? Is there potential to work flexibly to enable a balance in your priorities?
  3. Look after yourself – It’s just looking after yourself so you don’t fall apart at the seams. Like a trusty van, you need regular maintenance, you see. That means getting some decent kip, proper grub, and a good dose of fresh air (with the furry fella, in my case!).

3 magic steps

Right, that’s that sorted.

Don’t mess about with burnout any longer, you’ll end up feeling rotten. Figure out what’s nicked your joy at work, don’t be scared about changing things up, and always take care of yourself. Change might seem like a right palaver, but in this case, it’s for the best. You’ll be feeling as good as new again in no time!

Interested to find out more?

Call us on 01617 985789

Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb

25 March 2024

How Encouraging Employee Self-Care Can Boost Your Business

Look, I’m a bloke who’s been in and around construction for the last 30+ years. We blokes don’t talk about this ‘feelings’ stuff. This is why the biggest killer of men under 50 is suicide – sobering thought that. I’m not saying we need to become all snowflaky and wet behind the ears, but as the saying goes, it’s good to talk. You’ve got a duty of care to the lads (I’m guessing it’s nearly all lads) on your sites and your employees in the office. Banter can cover up for many a troubled soul.

What is Self-Care?

Let’s first go to the dictionary and ask the experts. Self-care encompasses everything related to maintaining physical health, including hygiene, nutrition, and seeking medical care when needed. It’s a decision-making process empowering individuals to look after their health efficiently and conveniently, often in collaboration with health professionals.

Got that?

At a simple level, this is about helping your staff come to work and be happy, safe and healthy. But also to recognise they may bring their woes from home to work.

Sure, you see your business as your baby, but as the saying goes ‘it takes a village’. And to keep your business booming, you need to make sure your employees are healthy and happy, so they can stay on their A game.

Types of Self-Care

Let’s break this down into the different types of self-care.

Emotional Self-Care: Involves practices like positive self-talk, taking regular breaks, and maintaining social connections. As business owners, you’re sure to have experienced your fair share of burnout. It’s all about not letting your employees head down the same road. A simple ‘you alright, mate?’ may be enough to spot someone struggling.

Physical Self-Care: Such as, prioritising sleep, regular exercise, and choosing nutritious foods. Don’t look at me like I’m a fine one to talk. My body has been defined by some of the best food that Manchester can offer! Just ignore my office’s favourite bowl of special chocolate… that’s all about helping our clients’ emotional health when they visit.

Spiritual Self-Care: Work with me on this one. This may sound a little woo-hoo to you. But what works for others may not be your thing. Such as attending religious services, taking religious holidays off, spending time in nature, meditation, and keeping a gratitude journal.

Self-care involves making healthy lifestyle choices, responsibly using medicines – including the caffeine-laden and energy-type drinks, recognising symptoms, self-monitoring, and self-management of health conditions. But sometimes it’s not so easy to spot these dips in mental health by yourself. Believe me, my business coach is the first to tell me if I’m trying to overcommit. So, you need to open up the conversation with your employees as well.

Why Self-Care is Important

Stress and burnout are rampant. Average ratings of personal well-being in the UK have declined across all measures in the year ending March 2023. I’m sure we have personal stories to tell of how our mental health or people around us suffered during and after the COVID-19 years.

Similarly, older research commissioned by Mind found that 57% of the people surveyed drank alcohol after work to cope with stress. In addition to this, 28% said they smoked cigarettes, 16% took prescribed sleeping aids, and 15% took antidepressants. And yes, as a regular vaper, I know I am part of those statistics, but don’t judge me!

Self-care mitigates these issues, enhancing mental and physical health, reducing illness risks, and boosting energy.

We need to look after ourselves first! Without that, our work is sure to suffer.

How Improving Your Employee’s Self-Care Can Boost Your Business

Investing in your employees’ self-care isn’t just beneficial for them; it’s a strategic move that can significantly boost your business in various ways:

Enhanced Productivity

Employees practising self-care are more likely to be mentally and physically rejuvenated, leading to higher productivity. After all, your on-site employees are often doing a hard physical job for you. They need all the energy and strength they can get. Regular self-care reduces fatigue, enhances concentration, and fosters a more energetic and efficient workforce.

Better Retention and Recruitment

A culture that prioritises self-care attracts top talent and retains them. Employees are likelier to stay with a company that values their well-being, reducing turnover costs and enhancing its reputation as a desirable workplace.

Reduced Burnout

Burnout is a major cause of reduced productivity and increased absenteeism. Encouraging self-care reduces the risk of burnout, ensuring that your team remains motivated and engaged.

Positive Work Culture

A workplace that promotes self-care is often characterised by positivity and higher morale. This environment fosters collaboration, creativity, and community, enhancing the work atmosphere.

Increased Employee Engagement

When employees feel cared for, their loyalty and engagement increase. This heightened engagement leads to better customer service, enhanced team collaboration, and a stronger commitment to the company’s goals.

Decreased Turnover Rates

Replacing employees is expensive. Fostering an environment of self-care can significantly reduce turnover, saving the company substantial recruitment and training costs.

Innovation and Creativity

Well-rested and mentally healthy employees are more likely to think creatively and propose innovative solutions, driving the business forward.

Better Decision Making

Employees who engage in self-care have clearer minds and are better equipped to make sound, strategic decisions, which is crucial for the growth and success of any business.

Enhanced Company Image

A company that promotes self-care and employee well-being enhances its brand image, making it more attractive to potential clients and partners who value corporate responsibility.

Resilience in Challenging Times

Employees who regularly practice self-care are more resilient during stressful periods, such as economic downturns or organisational changes, ensuring business continuity and stability.

Fostering a Sense of Belonging

Employees feel valued and important when a company takes active steps to encourage self-care. This sense of belonging can foster a strong, united workforce aligned with the company’s mission and values.

By integrating self-care into your business culture, you not only enhance the well-being of your employees but also set up your business for long-term success. In today’s fast-paced and stressful business environment, a strategy that includes employee self-care is not just beneficial; it’s essential.

How to Encourage Employee Self-Care

We’ve all been there, haven’t we? Burnt the midnight oil, pushed like a donkey up a hill, and forgotten to fill our own tank in the process. Well, that’s where self-care comes in. Fostering a culture of self-care in the workplace is crucial for both employee well-being and organisational success.

  1. Educate Employees on Self-Care

Teach all employees about self-care practices and their significance. By organising workshops and distributing informative materials, the staff gains essential knowledge. This approach means a well-informed workforce is better equipped to manage their health, enhancing overall productivity and morale.

  1. Make Flexible Working an Option

Introduce flexible working schedules to help balance professional and personal life. Allowing employees to adjust their work hours fosters an environment where stress is minimised and optimises work-life balance, resulting in a more engaged and efficient team.

  1. Provide Mental Health Resources

Offer mental health resources, such as counselling services and app subscriptions. This commitment to mental health support signifies that the organisation values its employees’ well-being. Staff members feel supported and valued, increasing job satisfaction and engagement.

  1. Offer Stress and Time Management Learning Opportunities

Providing training for effective stress and time management equips employees with critical skills. This initiative ensures that staff can better manage workplace pressures, contributing positively to the organisation’s efficiency and reducing burnout.

  1. Establish Work Hours

Clearly defining work hours helps employees distinguish between work and personal time. This means that employees can fully disengage from work after hours, leading to increased focus and productivity during working hours.

  1. Prioritise Mentoring

Implement mentoring programs for personalised guidance in self-care. This approach supports individual development and strengthens the team dynamic, leading to a more cohesive and supportive work environment.

  1. Lead by Example

When leaders practice self-care, they set a positive example within the organisation. This leadership style fosters a culture where self-care is valued and practised, ensuring employees feel encouraged to prioritise their well-being.

Don’t Forget About Your Self-Care

Don’t forget about yourself in all this! You can’t pour from an empty cut, can you? So, taking care of yourself isn’t a luxury, it’s essential. This means ditching the all-nighters, fuelling yourself with proper grub, and finding ways to unwind. Burnout is a nasty bugger, and it’ll sink your ship faster than a leaky bucket.

Here’s the bottom line: A happy boss makes for a happy crew, and a happy crew makes for a successful business. It’s all connected. Look after your lot, and they’ll look after the business. It’s a win-win, see?

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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