If you purchase properties with the intention of doing them up and selling them on, you will likely fall under HMRC’s Construction Industry Scheme (CIS) rules.
The Construction Industry Scheme was introduced by HMRC to combat tax evasion in the construction industry.
You will be considered a ‘mainstream contractor’ and subject to the scheme if you are using other people’s labour to carry out building work on property that you plan to sell. This includes using the services of electricians, plumbers, painters, bricklayers etc.
Certain jobs can be exempt from the scheme such as architecture and surveying, please see HMRC’s guide for more information.
If you fall within CIS you must set up a PAYE account, make tax deductions from subcontractors to pay over to HMRC and file monthly returns.
HMRC can issue substantial penalties if they find that you fall under CIS but haven’t told them therefore please contact us for advice if you aren’t sure whether it applies to you or not.
NOTE: Generally buy-to-let properties do not fall within this scheme unless significant work is carried out on a property, for instance changing the use, or if construction expenditure exceeds £3 million in a 12 month rolling period. These are known as “deemed contractors."
Before taking on your first subcontractor, your business needs to register for CIS.
You’ll need a PAYE payroll scheme and registration for CIS can be done at the same time by ticking a box asking if you will be engaging any sub-contractors in the Consturction Industry. We can assist you with setting up a PAYE scheme, please contact your Account Manager to discuss this.
If you already have a PAYE scheme, you can call the HMRC CIS helpline on 0300 200 3210 to ask to also use the CIS scheme.
Once registered, you will need to have a Business Tax Account, a guide for this can be found here.
It’s a HMRC requirement to verify a new subcontractor before they complete any work for you.
Verification is the process of checking if the subcontractor has registered under CIS and what their payment status is. The payment status lets you know the percentage of tax you need to deduct:
30% if not yet registered as a subcontractor
20% if they are registered
0% if they are registered with a gross payment status
You can use HMRC’s online CIS service through your business tax account to verify a subcontractor.
If verifying an individual you’ll generally require their name, 10 digit unique taxpayer reference (UTR number) and their national insurance.
If verifying a company, you’ll generally need the company name, company’s 10 digit UTR number and the company registration number.
The subcontractor will send you an invoice as normal for their work which should also include the amount of CIS tax they believe should be deducted. Before making payment you should check this agrees to HMRC based on the verification process above.
Within 14 days of the end of each tax month, which always ends on the 5th of a month, you must provide a CIS statement to the subcontractor outlining the deductions made. You can find an example document from HMRC here.
As an example if you pay a subcontractor in the tax month 6th July to 5th August, you must send them a CIS statement by 19th August.
Returns must be filed monthly to HMRC by the 19th following the tax month end and payment made by the 22nd if paying electronically or the 19th otherwise.
As an example, the monthly return to 5th July:
Covers all payments made to subcontractors between 6th June and 5th July
Needs to be submitted to HMRC by 19th July
Needs to be paid to HMRC by 22nd July (if paying electronically)
Note: If you haven’t paid any subcontractors you should still make a nil submission - HMRC will charge late filing penalties if nothing is filed.
You can use HMRC’s Online CIS service through your Business Tax Account to file returns. It would be useful to have the CIS statements you’ve sent to the subcontractors to hand when making the submissions as some information from them is required.
Please let us know if you are operating under the CIS scheme and we can create a separate category in the bookkeeping for you to record the payments to HMRC for the Construction Industry Scheme.