HMRC is currently shining a spotlight on the construction sector as records are showing that some contractors are making incorrect Construction Industry Scheme (CIS) deductions.
In this blog the Clayton & Brewill team discuss what you must do as a CIS contractor, including the most recent deduction rates and how to make a CIS reduction.
What are Construction Industry Scheme deductions?
Under the CIS contractors must deduct money from a subcontractor’s payments and give this money to HMRC. Contractors must register for the scheme and while subcontractors do not have to, deductions are taken from their payments at a higher rate if they are not registered.
CIS deduction rates are:
- 20% for registered subcontractors
- 30% for unregistered subcontractors
- 0% if the subtractor has gross payment status (GPS)
Recent changes to gross payment status
Having GPS means that an individual will be paid by contractors in full without deductions and then will pay their own tax and National Insurance (NI) at the end of the tax year.
In order to qualify for GPS, HMRC requires proof that:
- Tax and NI have been paid on time in the past
- The business does, or provides labour for, construction work in the UK
- The business is run through a bank account
Since 6 April 2024, VAT has been put on the list of compliance areas that will be checked by HMRC when someone applies for or tries to renew GPS. HMRC can now immediately cancel GPS if it has reasonable suspicion of fraud relating to VAT, PAYE, Corporation Tax or Income Tax.
Attention from HMRC
HMRC’s latest compliance drive has seen many contractors receiving nudge letters from the tax authority. These letters outline the latest rules and encourage contractors to ensure they are making the right CIS deductions from payments made to contractors.
Any business that gets a letter from HMRC should prioritise taking action, as if it is ignored HMRC will start a compliance check which may result in a penalty if mistakes in CIS returns are found.
How we can help
It is more important than ever that businesses using the CIS are up to date with its rules and confident that they are applying them correctly. If you have any questions or would like support checking whether your business is fully compliant, please do not hesitate to get in touch with the Clayton & Brewill team today.
