Understanding the Construction Industry Scheme (CIS)

As a heating and plumbing business, navigating the complexities of the Construction Industry Scheme (CIS) is essential to ensure compliance and avoid potential penalties. This guide aims to help you understand key components of CIS, including the definition of a subcontractor, the verification process with HMRC, the basics of the domestic reverse charge, and the importance of verifying subcontractors before making any payments.

What is a Subcontractor under CIS?

A subcontractor is any individual or business hired to carry out construction work for a contractor. They are self-employed, meaning they run their own business and are responsible for its success or failure. Importantly, self-employed subcontractors are not paid through PAYE.

For more information on employment status, visit HMRC’s website: Employment Status.

Information Required for Subcontractor Verification

Before you pay a subcontractor, you must verify them with HMRC. The information you need to gather includes:

• Subcontractor's Legal Business Name: The registered name of the business.
• Unique Taxpayer Reference (UTR): A 10-digit number unique to the subcontractor's tax account.
• National Insurance Number: For sole traders and individuals.
• Company Registration Number: If the subcontractor is a limited company.
• VAT Registration Number: If the subcontractor is VAT registered.

Verification determines whether to deduct CIS tax at the standard rate, higher rate, or if the subcontractor is eligible for gross payment status (where there are no deductions).

As a client with Together We Count, we provide template subcontractor verification forms for your use. These forms cover all the necessary information to make the verification process quick and smooth. Please speak with your client manager to obtain copies.

Basics of the Domestic Reverse Charge (DRC) VAT

The domestic reverse charge for VAT is a measure to combat VAT fraud in the construction industry. It applies to supplies of construction services between VAT-registered businesses where the recipient accounts for the VAT instead of the supplier.

Key Points for Subcontractors:

1. Applicability: The reverse charge applies if both parties are VAT registered, and the supply is within the scope of CIS.
2. Invoice Requirements: Invoices should not include VAT but must state that the reverse charge applies, along with the amount of VAT to be accounted for by the customer.
3. Excluded Services: Services provided to non-VAT registered customers or end-users are not subject to the reverse charge.

If you would like to see an DRC for VAT example invoice, please just let us know and we can assist.

Importance of Verification Before Payment

It is important not to pay any subcontractors until they have been verified with HMRC. Failing to do so can result in:

• Incorrect tax deductions, leading to compliance issues.
• Potential fines and penalties from HMRC.
• Increased risk of fraud and financial loss due to overpayments and not deducting the correct amount of CIS or VAT.

Our team at TWC will quickly and efficiently verify any new subcontractors for you and are happy to check any subcontractor invoices to ensure the correct amount of tax (whether CIS or VAT) has been accounted for.

Additional Tips for Managing CIS in Your Business

1. Maintain Accurate Records: Keep detailed records of all payments made to subcontractors, including invoices, UTR numbers, and verification details.
2. Regularly Review CIS Deductions: Ensure that CIS deductions are correctly calculated and reported to HMRC.
3. Stay Updated on CIS Regulations: CIS rules can change, so it’s important to stay informed about any updates from HMRC. Don’t worry, we will keep you informed of any changes.

By understanding these key components of CIS, you can manage your obligations more effectively and ensure that your heating and plumbing business remains compliant with HMRC regulations. Managing CIS can be complex, but with the right knowledge and processes in place, you can navigate it successfully. Always verify subcontractors before payment, understand the domestic reverse charge, and keep accurate records to ensure compliance.

For personalised advice and support, feel free to contact our team of experts who specialise in the heating and plumbing industry. We're here to help you every step of the way.

For more detailed information, refer to HMRC’s CIS manual: HMRC CIS Manual.

Contact us today at info@togetherwecount.co.uk to get expert advice tailored to your needs!