If you are wondering what the CIS payment and deduction statement are, then we are going to walk you through this important tax compliance tool. HMRC is also responsible for ensuring tax compliance by the self-employed as well as by the public limited companies in the construction industry. For this reason, this government has designed different tools to ensure no contractor or subcontractor has evaded the taxes in the UK.
So, let’s start our discussion of what a CIS payment and deduction statement is and why it is important. Moreover, we will discuss the details essential for the CIS and what its template looks like.
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What is CIS Payment and Deduction Statement?
CIS stands for Construction Industry Scheme (CIS). It has been designed and used to maintain a record of tax deductions and payments by a contractor who hires the subcontractors.
Whenever a subcontractor is paid, the contractor deducts the income tax according to the rules of the HMRC. Moreover, the subcontractors maintain a record of all these payments to ensure tax compliance.
The CIS payment and deductions statement is prepared within 14 days of the tax returns.
As the date of submitting tax returns is the 5th of every month, the CIS report must be submitted within 14 days of this date.
The contractor has to share this detail with the HMRC every month to ensure all the subcontractors have been under the CIS.
These deductions are considered as the advance payment for the tax and national insurance of the subcontractors.
Registration of Contractors and Subcontractors
HMRC requires the contractors to register themselves for the CIS following the fulfilment of certain requirements. For example, if a contractor has spent up to £3 million in the last 12 months since the first payment has been made, he is supposed to get himself registered as a contractor in the construction industry.
On the other hand, the subcontractor is not essentially required to register for CIS with the HMRC.
If you’re registered with the HMRC for a CIS, 20% of your salary will be deducted from your salary every month.
When to prepare a CIS statement of payments and deductions?
CIS statement is prepared within the tax returns date which is the 5th of every month. It means the last date is the 19th of every month.
It means to say the date of submission of payments and deduction would not coincide with the date of the salary.
However, if a subcontractor is being paid on a weekly basis, the contractor will add up all details and then send it to the HMRC at the last date.
There’s no specific template for preparing a CIS report. Instead, every contractor can prepare a customised Template for their company. However, HMRC has shared a Template on its official website.
Template and Details in a CIS Statement
The following details will be added to a Construction Industry Statement.
- The contractor’s name
- The contractor’s employer tax reference
- The month of the tax returns
- The subcontractor’s name
- The subcontractor’s unique tax reference
- The verification number provided by HMRC during the verification process – only compulsory for higher rate deductions at 30%
- The gross amount
- The CIS qualifying materials amount
- The CIS tax amount
Benefits of CIS Statement
CIS helps in tax rebates if the deductions are higher than the payments. On the other hand, they will send you a reminder for paying the remaining tax amount if the payments are higher than the deductions.
In the case of the gross payment status of the subcontractor, the CIS is not required.
Conclusion
In sum, the CIS statement of payments and deductions is helpful in tax compliance and contractors in the construction industry are required to maintain a record of these deductions and share them with the HMRC.
There’s no specific template to be followed for adding the details of the payments and deductions of the subcontractors.
All of these deductions are added to the National Insurance and tax of the subcontractors.
If you are in the construction industry and looking to design a CIS statement of payments and deductions, contact our expert advisors at Accotax.
Disclaimer: All the information provided in this article on CIS payment and deduction statement is general in nature and it does not intend to disregard any of the professional advice.
