The Construction Industry Scheme (CIS) sets out how contractors deduct tax from payments to subcontractors working in construction. Contractors must submit monthly returns to HMRC detailing payments made and deductions taken.
HMRC has recently highlighted some common errors in CIS returns and is asking contractors to check their figures carefully before submission.
The main mistakes include:
- Using the wrong CIS deduction rate. Contractors must verify subcontractors with HMRC before their first payment and again if they have not appeared on a return in the current tax year or the previous two tax years. HMRC will confirm whether the applicable rate is 30%, 20% or 0% for subcontractors with gross payment status. A subcontractor’s deduction rate can change so contractors should always use the latest rate provided by HMRC.
- Missing out material costs. CIS deductions generally apply to labour costs rather than materials. Where invoices include materials, contractors should record these separately and ensure the figures agree with their records.
- Entering figures incorrectly. Data entry mistakes or other incorrect figures in payments, material costs or deductions can make returns inaccurate. Contractors should check all figures against invoices and accounting records before submitting their returns.
Contractors should correct errors as soon as possible and follow HMRC guidance on amending returns. HMRC may contact them if figures do not match its records or require further investigation.
About this article
Imported from a third-party tax news feed and reviewed by the practice before publication. General guidance only - not personal advice.