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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.
I’ve been around for a few years. In my opinion there is nothing worse than talking to a prospect whose business and mental health is in a pickle because they trusted their accountant to do their stuff once a year. That’s where a decent accountant comes in. If you get a good one (and pay for the right service level), they should be working with you to, keep you out of trouble and save you a bob or two along the way. But picking the right one can be a right palaver. After all, so many of them sound the same. So here’s what to look out for:
You wouldn’t let some bloke in the pub operate on you, would you? Same with your business. Don’t get some backstreet bookkeeper fiddling with your finances. Make sure they’ve got the proper certificates and licenses, alright? A good way to check is look for institute and software logos on their website.
Are they qualified through one of the main accountancy bodies (the ACCA, ICAS or CIMA)? What is their speciality and what industry experience do they have? Whatever your specific requirements are, make sure that they have the experience and the kind of services that you need. (E.g. goal setting, tax planning or cash forecasting as well as compliance services).
The next factor to consider when choosing an accountant is money! There are still some traditional accountants out there, who charge by the hour, like a meter on a cab. Others do a set price, no matter how much you bend their ear. By the way, we charge a fixed fee as we know our clients like certainty around what it will cost.
The most common complaint about accountants is the disappearing act. Don’t get me wrong, they’ll be reminding you to send in your documents when your self-assessment tax return is due. Some may bill you a fortune to do nothing more than pop some numbers in their software. Then vanish again for another 9 months. Think of a decent accountant as financial partner, critical friend and the voice of sanity. After all, there isn’t much I haven’t seen in 30 years of working with construction and property company owners.
A good accountants should help you navigate those pesky growing pains, and keep your business on the straight and narrow, all year round. Not just when the taxman comes knocking! Or when that nasty unexpected brown envelope arrives.
When choosing an accountant, check their accessibility (referrals and reference checks is a good way to see whether you’re likely to be fobbed off to a junior). It’s also handy to see how proactive they are (e.g. suggesting ways to save you money and offering to introduce you to good contacts) all year round.
You’ve got to feel alright with them. Like chatting with a mate down the pub. If explaining your business feels easy, that’s good. For example, we don’t make any judgement if a client turns up from a busy day on site with their dirty work clothes still on. Or if the air gets turned somewhat blue while we are talking.
You and your accountant will need to be a team. So find someone who gets your vision and what you are about, not some youngster with a laptop covered in stickers.
Whether you’ve been trading for a while or new into business, a decent accountant is worth their weight in gold. They’ll be your financial sidekick (sorry cheesy!), sorting the numbers and giving you the right advice. The sooner you get a good one on your team, the better. But remember, choose wisely, alright? Like finding the perfect partner for a game of darts – you have to be on the same wavelength!
Interested to find out more?
Call us on 01617 985789
Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb
Self-employment can be tempting, especially if you’re fed up chasing the weekend or longing to be your own gaffer. Before you chuck in the towel at your day job and daydream about all the time you’ll have for brew breaks (because let’s be honest, that’ll be replaced with a different kind of hectic), take a good, long look at yourself. Self-employment is not for wimps or those who are work-shy – despite what you may think about the gaffer. If you are going to put food on the table and take your missus to a nice place for her holidays, you are going to have to work hard and handle pressure.
So, grab a cuppa, stick your thinking cap on, and answer these questions truthfully:
1) Are you confident in your skills and expertise?
2) Do you have skills and passion for the business you’re considering?
3) Do you enjoy working alone?
4) Got the knack of prioritising tasks like a pro?
5) Got the get-up-and-go to crack on without someone cracking the whip?
6) Up for wearing all the hats – marketing, sales, the whole lot?
7) Sharp enough to pick up new tricks quickly?
8) Got the initiative to chase new ideas?
9) Can you single-handedly make the call when the going gets tough?
10) Are you able to pick yourself up, dust yourself off and problem solve in tricky situations?
11) Do you have the knowledge and skills to make your own product or service?
12) Do you know how to promote yourself so that others will buy from you?
13) Happy to build potential connections in the business world?
14) Thick-skinned enough to handle a bit of a pay cut while you get your business off the ground?
15) Are you willing and prepared to put in long hours of graft at the start?
16) Have you given the family the heads up on the potential impact at home?
17) Can you live with high levels of uncertainty?
18) Can you take a knock and keep on ticking?
19) Good at turning a penny into a pound?
20) Are you a dab hand at setting goals and smashing them?
Give yourself a point for every Yes answer and give yourself a mark out of 20. If you scored 16-20, self-employment will be a walk in the park for you!
If you answered “no” or “maybe” to a lot of the questions, self-employment might not be your cup of tea right now. You may need to do some thinking and soul searching before you take the plunge.
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By no means is this self-employment quiz the decider for whether you choose to run your own business or not. However, it is based on the qualities, skills, and traits you will need to become a successful business owner! Even if your ambition level is to “only” work with yourself with a few subbies helping you out on jobs.
If you want to go for it and become self-employed, look at where your ‘No’ answers are. If you know you’re not a dab hand with money, consider getting an accountant or bookkeeper as early as possible.
Interested to find out more?
Call us on 01617 985789
Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb
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…
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.
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:
Once you’ve grouped your tasks, you’ll know what you need to focus on and what you need to avoid.
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.
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.
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:
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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