The construction industry in the UK which is worth over £362 billion. This means the sector is to achieve an annual average growth rate (AAGR) rise of 1% per year until 2027. In 2019, it was said to have contributed to 6% of all UK economic output. To put it lightly, the construction industry is a mega sector which UK trade and the economy heavily relies on.
Due to the amount of alleged tax evasion and fraudulent behaviour in the industry, the Construction Industry Scheme (CIS) was introduced. The CIS is a HMRC scheme where contractors deduct money from a subcontractor’s payments and pass it to HMRC. The deductions count as advance payments towards the subcontractor’s tax and National Insurance. Contractors must register for the scheme. Subcontractors do not have to register, but deductions are taken from their payments at a higher rate (30% as opposed to 20%) if they’re not registered.
Because of the amount of detail and time it takes to process CIS correctly, there are many benefits to outsourcing CIS responsibilities. We go through the positives of doing this, and why undergoing CIS responsibilities in-house can lead to many negative consequences…
What Are CIS Responsibilities?
There are overwhelming benefits to handing over CIS responsibilities to a professional firm such as an accountant like ourselves. For clarity, it’s important going over exactly what CIS covers. CIS is deemed to include most construction work such as:
- a permanent or temporary building or structure
- civil engineering work like roads and bridges
- preparing the site – for example, laying foundations and providing access works
- demolition and dismantling
- building work
- alterations, repairs and decorating
- installing systems for heating, lighting, power, water and ventilation
- cleaning the inside of buildings after construction work
When registering for the Construction Industry Scheme (CIS), you’re still responsible for paying the correct tax and National Insurance for your business, even if deductions have been made by contractors throughout the year. Contractors will give you a monthly statement of what they’ve paid you and deductions they’ve made to help with your accounting.
If you’re a sole trader or partner, you should submit your Self-Assessment return at the end of the tax year. HMRC will then calculate your tax and National Insurance amount, subtracting any deductions made by contractors. If you are set up as a Limited Company and have gross payment status, you will need to declare all your income in your Corporation Tax return as usual. If you pay CIS deductions, you must claim these back through your company’s monthly payroll scheme. Do not try to claim back through your Corporation Tax return as there’s a chance you could get a penalty from HMRC for incorrect filing.
It all sounds rather complicated, doesn’t it?
What Are The Benefits To Outsourcing CIS Responsibilities?
As you can see by all the work needing to be recorded and verified correctly, there’s a fair amount of admin and filing which goes with the CIS. Because of this, often construction businesses who do this in-house encounter many problems. Penalties for late monthly returns start off at the £100 mark. Likewise, an incorrect status for subcontractor on monthly return can result in a penalty of up to £3,000.
Letting a dedicated professional who has an extensive knowledge of the CIS is highly recommended. At Nordens, you can count on our expertise in CIS rules and our ability to assist you with things like CIS registration, CIS calculations, CIS VAT attribution, deduction statements and reclaim management. By us taking care of CIS for your construction business, it will benefit you in a number of ways:
CIS rules are complex and hard to get your head around. By outsourcing to us, we can provide immediate access to our specialist CIS experts. This won’t just help you to navigate the confusing rules and regulations of CIS. We will also educate you on matters with full transparency, so you know exactly what’s going on.
By handing over CIS responsibilities, it can save huge amounts of priceless time for construction businesses. This will enable key figures in the company to focus on more important operations and projects which make up the lifeblood of the business.
Hiring and training someone to solely look after CIS and the accountancy issues will incur a large salary. By outsourcing CIS responsibilities, it will definitely be more cost-effective. Not to mention, you’re also getting a whole team of specialists work for you at a fraction of the cost of a salary.
Reduced risk of errors
Reducing the risk of errors in compliance and record-keeping is critical in CIS. By having someone in-house take care of it for you, the risk of errors is increased. When going through a professional firm like Nordens, we have the expertise and systems in place to ensure consistent and meticulous accuracy and compliance. This will leave you safe in the knowledge that everything is taken care of.
Non-compliance is one of the largest contributors to penalty fines when it comes to CIS. With the latest rules and regulations changing constantly, it’s difficult to keep on top of it all. Outsourcing CIS can help avoid penalties and fines for non-compliance, as professional firms like Nordens are always up-to-date with the latest rules and regulations.
Better cash flow
Cashflow is the beating heart of any business. By handing over responsibilities for CIS, businesses can manage their cash flow more effectively. This is because we can assist with tax and payments to HMRC in a timely and structured manner, providing you with accurate financial reporting which allows you to budget appropriately.
We take auditing very serious here at Nordens. In fact, our expert and highly qualified auditors can identify your company’s financial strengths and weaknesses, as well as how and where it may improve. Professional firms are better equipped to handle audits from HMRC and can help businesses prepare for these audits.
As the construction business continues to grow exponentially, it may require more resources to handle CIS compliance. By outsourcing to a company like Nordens, it puts into place a trusted platform for scalability and flexibility. You can adjust or alter the amount of work needed from us, giving you control and admission of our services to use to your benefit.
We hope this has outlined to you the benefits of handing over CIS responsibilities to a professional services firm like ourselves. If you’d like to know any further information on anything mentioned, or anything accounting related for that matter, please do not hesitate to get in contact with us at Nordens, where one of our trusted advisors would be happy talking you through your query.