Navigating CIS (Construction Industry Scheme) as the Tax Year Ends

The start of the 2024/25 tax year is 6 April 2024. 

Be prepared for the new financial year by understanding what a CIS Self Assessment tax return is and plan ahead for the key important dates to avoid penalties from HMRC.

Registering for the CIS (the Construction Industry Scheme) is compulsory for contractors however it is optional for subcontractors. If a subcontractor isn’t registered for the CIS, their tax and NI  deductions will be higher at 30%. If a subcontractor has gross payment status, no deductions will be made. 

Read more about gross payment status on our tax tips guide here. 

Contractors must complete a monthly CIS return so HMRC knows who has been paid, how much and what deductions were taken for tax.

Read more about CIS in our guide here.

Contractors must complete a monthly CIS return for HMRC to inform them what subcontractors have been paid, how much and what deductions have been taken. All subcontractor deductions must be added onto the CIS return including 20% for subcontractors under the CIS, 30% for those not and even subcontractors with gross payment status of 0%. 

Detailed and accurate financial records should be kept to make the CIS monthly return easy to complete, as it needs to include the subcontractors name, verification number, gross amount, materials amount and tax deductions.

The deadline for the CIS return is the 19th of each month, followed by payments to HMRC made by the 22nd of each month. 

If subcontractors are not used for one month, a monthly CIS return doesn’t need to be completed. However HMRC should still be made aware otherwise they may assume the return is late and issue a £100 CIS penalty. 

A CIS Self Assessment tax return is usually referred to as a Self Assessment tax return. This is completed annually by all self-employed individuals, including main contractors who are directors of limited companies. The Self Assessment tax return combines all sources of income, then calculates Income Tax and National Insurance due to HMRC for the previous financial year. 

Sole traders or partners should include any CIS deductions contractors have made in the ‘CIS deductions’ field of their tax return.

Limited companies that pay CIS deductions must claim these back through the company’s monthly payroll scheme. 

Read more about how to pay tax as a contractor, whether registered as a sole trader or a limited company on our guide here.

Keeping accurate records means CIS deductions will be calculated correctly and penalties for late or incorrect payments from HMRC will be avoided. Records should include:

Records should be organised so they can be easily accessed when the information is needed. Accurate information will make monthly CIS returns and CIS Self Assessment tax returns easier to complete with less room for error. 

If something is used solely for business purposes, contractors and subcontractors are able to claim back expenses. This may include mileage, fuel and tools or equipment required to complete a job. Expenses are deducted from overall income, so tax is only paid on profits.

All allowable expenses must be included on the CIS Self Assessment tax return. 

Thorough records should be kept of expenses including physical or digital receipts, bank statements or mileage logs as HMRC may ask for evidence. 

If an incorrect expense is claimed for,  HMRC may issue a penalty fine. If unsure, HMRC recommends contacting their Self Assessment helpline to confirm if an expense is allowable before submitting a tax return.  

Penalties will be issued by HMRC when tax rules are not adhered to, for example;

• Paying tax late
• Submitting a tax return or other paperwork late
• Failing to tell HMRC about changes that may affect tax liability
• Making an error on a tax return, payment or other paperwork that understates or misrepresents tax liability (unless reasonable care was taken)

CIS Self Assessment tax returns filed late by one day will incur a fixed penalty of £100. After three months, the penalties increase as follows:

Contractors under the CIS will face additional late filing penalties if they miss the deadline for submitting CIS returns. An automatic fixed penalty of £100 will be issued if missed by one day. After this, HMRC will issue penalties as follows:

Read more about late filing penalties on our guide here.

• Prepare for the tax year early: gather all financial documents and business records into one easy to access place, ready for when they are needed. Mark key dates clearly. 

• Keep accurate and detailed records: keep records organised so they can be easily accessed when the information is needed. Accurate and up to date information means less room for error and less likely to incur penalties and fines. 

• Stay ahead of changes to tax laws and legislations: there may be changes announced in the upcoming Spring 2024 Budget. Keeping up to date with tax announcements is important to remain compliant and stay ahead of changes affecting business or workforce.

Know what tax you need to pay: understand tax responsibilities, including what tax to pay and HMRC deadlines. Read more on our guide here.

Indigo saves contractors admin time, fuss and money by helping them avoid tax penalties from late filing and missed deadlines and by removing the administrative burden of CIS compliance. 

Indigo holds every subcontractor’s statement of earnings on their individual, safe and secure, My Indigo portal. This can be accessed directly by subcontractors ready to complete their Self Assessment tax returns at any time.

Contractors also have access to the MyIndigo portal to manage their full labour supply chain. 

Please get in touch for a free Business Compliance Health Check if this is something you think Indigo can help you with. 

If you are a subcontractor needing statements for your Self Assessment tax return, please check your MyIndigo portal or get in touch with our operations team.