CIS Verification. What is it and why do we need to do it?

If you work in the construction and trade industry then you will be familiar with CIS (Construction Industry Scheme), but What is CIS and why do you need to do the verifications?

The Construction Industry Scheme is a means by which HMRC can take deductions throughout the year that count towards the subcontractors Tax and National Insurance liabilities.

CIS is only charged on the labour element of the invoice.

Under the Scheme the Contractor must verify the subcontractor to ensure that they are registered and also to confirm what rate they are on.

The scheme has three rates;

  • Gross

  • Standard

  • Higher

Gross means that you would pay them the full cost of their labour.

Standard means that you would deduct 20% from their labour costs and pay this to HMRC when you process your CIS return.

Higher means that you would deduct 30% from their labour costs and pay this to HMRC when you process your CIS return.

If the subcontractor is a limited company then you would require their address, contact details, company number and UTR ( Unique Tax Reference) to verify them, but if they are a sole trader then you would also need their National Insurance Number.

Once Verified, you would be given a reference number that confirms that they've been verified and you would need to enter this into your accounting software that you use for processing CIS each month.

When do I need to process the CIS?

CIS normally runs until the 5th of the month, then you have approx a week to process your CIS and submit the report to HMRC. You then must pay the CIS to HMRC by the 19th of the month, so it really is quite a short window.

How will I prove to the subcontractor that I've paid the CIS to HMRC? When you have submitted the monthly return, you should then issue then with a statement confirming the deductions made/paid to HMRC and they can then use this when doing their annual return.

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