CIS Payroll: A Guide for Construction Contractors

Confused about CIS payroll? Wondering if you should hire a CIS payroll company? In this post, we’re going to talk about why this is an important area for a construction company to invest in.

Let’s get one thing out of the way first; whether you are an established company or a growing one, you must be compliant with CIS payroll.

What do we mean when we say “CIS Payroll”?

CIS is an acronym that stands for Construction Industry Scheme, so the full term is Construction Industry Scheme Payroll.

If you are a contractor who pays subcontractors to work on your projects, you need to be familiar with CIS Payroll. This lays out a set of rules that outline how you are supposed to pay your subcontractors.

The CIS Payroll scheme was devised and is monitored by HM Revenue and Customs. If you are working in the UK’s construction industry, you need to comply with these rules and register to this scheme.

This scheme requires you to deduct a portion of the payments that go to your subcontractors and use it to pay HM Revenue and Customs.

The money that you deduct and pay to HM Revenue and Customs will cover your subcontractor’s National Insurance payments and serve as their tax payments.

How will this affect my construction payroll system?

If you are in the construction business, you will need to have a different payroll system for your employees and your subcontractors.

If you hire subcontractors to work on your project, you will need to follow this scheme when paying your subcontractors.

However, take note if your company is not strictly involved solely in construction but has some construction projects, CIS payroll may apply.

CIS payroll applies to companies that spend over £1 million a year on construction for three consecutive years.

How do I comply with CIS?

First, you need to register with HM Revenue and Customs. This goes for both contractors and subcontractors.

If you are a contractor, check with HM Revenue and Customs that your subcontractors are registered with CIS. You will need to file monthly returns for your contractors recording the deductions you made for HM Revenue and Customs payments.

Subcontractors may or may not be registered for CIS; however, registering allows them to take advantage of a more favorable tax rate.

Subcontractors registered with CIS are only subject to a 20% reduction in their payments, while unregistered subcontractors are subject to a 30% deduction.

Many construction companies find it advantageous to work with a CIS Payroll company, primarily if they work with many subcontractors. It simplifies the construction payroll process and allows them to focus on other aspects of running their business.

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About the Author: David Curry