05 Jan 2025
A Guide to CIS Statements
If you work in the construction industry, the chances are you’re familiar with the complex nature of the Construction Industry Scheme otherwise known as CIS.
Originally created in the 1970s, the scheme is designed to manage tax payments for both contractors and subcontractors easier. If you’re a business operating under CIS, issuing accurate and compliant CIS statements is crucial to ensure you fulfil your obligations.
Whether you’re a contractor managing your payments or a subcontractor trying to understand your entitlements, at Contractwise we’re here to help. For many years we’ve helped companies and individuals avoid HMRC reclassification keeping both contractors and subcontractors protected. We can even audit your payroll to ensure you’re fully CIS compliance.
In this guide, we’ll walk you through everything you need to know about CIS statements.
Read on to learn more…
What Is A CIS Statement?
A CIS statement is a document that all contractors must provide to subcontractors under the Construction Industry Scheme. It outlines the payment details, including deductions that are made for tax purposes. A CIS payment and deduction statement is essential for both parties as they ensure transparency and help subcontractors accurately complete and detail tax returns.
When completing a CIS statement, there is some key information that must be included. This includes the following:
Subcontractor details: This includes the name, unique taxpayer reference (UTR) and National Insurance number or Company Registration Number (if applicable).
Contractor details: The name, unique taxpayer reference and Employer Reference Number (ERN).
Payment details: Full payment details are necessary including: the gross amount earned before deductions, all deductions made under CIS (usually 20% or 30%) and the net payment after deductions.
Date of payment: The date when the payment was made needs to be included.
Tax month or the period covered: This helps align payments with HMRC reporting periods.
CIS deduction summary: A CIS deduction statement will provide a breakdown of how the deductions were calculated, ensuring clarity for subcontractors.
Why Were CIS Statements Introduced?
As mentioned earlier, the Construction Industry Scheme was created in the 1970s.
There were several reasons why the scheme and its statements were required including the following:
Proper tax records: CIS statements provide subcontractors with proof of tax that has been deducted at the source. This helps to simplify the process and ensure everything is as it should be.
Compliance: The scheme helps contractors meet their HMRC regulations. It is mandatory for all contractors to be registered with CIS.
Transparency: CIS statements also ensure subcontractors properly understand how much they’ve been paid and why deductions have been made. This minimises the risk of tax evasion and avoidance that used to be rife prior to the introduction of the scheme.
Legal Requirements For CIS Statements
Complying with CIS is not a choice.
For contractors, it is a legal requirement and non-compliance can result in severe consequences. Even honest mistakes may be punished so it’s important to understand the various legalities that relate to the scheme.
HMRC mandates that contractors issue CIS statements to their subcontractors every tax month. Failure to comply can lead to hefty penalties including big fines. Some of the primary requirements include:
Timely issuance: Statements must be issued within 14 days after the end of the tax month (so, for payments made in April, statements must be provided by 14th May).
Accurate information: All details must be correct and verifiable to avoid disputes and penalties. All information must be imputed to the best knowledge of the contractor and nothing should be omitted.
Record retention: Contractors should retain copies of all CIS statements issued for at least six years. In the event of an HMRC audit, they will be necessary.
CIS Statements For Contractors
If you’re a contractor in the construction industry, you are legally required to create CIS statements for any subcontractors you engage with.
A contractor is classified as anyone who pays subcontractors to do any kind of construction work. Even if a business is not in the construction industry, if it has paid for more than £3million worth of work in a 12 month period, it must register for CIS as a contractor.
To do this, you will need to follow the process below to ensure you’re completing the process accurately and legally.
Gather necessary information: Ensure you have accurate details about your subcontractor, payment amounts and deductions. Make sure you cross-check these against your records to avoid errors.
Complete the form: Using HMRC approved templates, complete your CIS statement.
Ensure compliance with HMRC guidelines: Verify that your statement includes all of the mandatory details. HMRC provides guidance on the required format and information that needs to be required. Make sure you double-check this as getting it wrong (even by accident) can be costly.
Deliver the statement: Provide the CIS statement to your subcontractor via email or post.
While following the steps above is straightforward, when managing multiple subcontractors the process can be time-consuming. Plus, some contractors prefer the peace of mind of getting professional support and the team at Contractwise can help ensure you get everything right.
CIS Deductions
Under the Construction Industry Scheme, contractors are required to deduct tax at source from the subcontractors’ payments. These deductions count toward the tax and National Insurance liabilities of the subcontractor. The standard rates are as follows:
20% deduction: for registered subcontractors
30% deduction: for unregistered subcontractors
0% deduction: for subcontractors who have gross payment status (no deductions).
Subcontractors who have gross payment status, they will receive their payments without any deductions. Instead, they will pay their taxes in much the same way as many other sole traders or self-employed people. To qualify, they must meet specific HMRC criteria such as turnover thresholds and a history of tax compliance.
CIS Statements For Subcontractors
CIS statements are vital for a subcontractor’s tax compliance. Under the Construction Industry Scheme, subcontractors are categorised as a person or business that performs construction work for a contractor.
Usually, they will be a specialist in a field of construction and can include:
Electricians
Carpenters
Labourers
Stonemasons
Plumbers
Roofers
And much more
To make the most of CIS statements, subcontractors should:
Check for accuracy: Take the time to review your statement and ensure all details, including deductions and payment amounts, are correct. If you notice any errors, you must notify the contractor immediately to rectify them.
Use for tax returns: Even though deductions are automatically taken in most cases, you will still need your CIS statements for tax returns. You will need to include details from CIS statements when completing your self-assessment forms and any deductions will count towards tax liabilities - reducing the overall amount you will need to pay.
Claim refunds: In some instances, too much tax may be deducted. If this has happened, you can claim a refund directly from HMRC. CIS statements will serve as useful evidence to back up any claim.
Common CIS Statement Challenges
Trying to navigate the world of CIS statements is not easy, and there are a few common problems and challenges that people come across.
These include:
Errors in statements
Mistakes can happen. This may include incorrect payment amounts or missing details. If you’re a contractor, you should always double-check all information before issuing statements. It’s also worth considering using a professional CIS company like Contractwise to prevent these mistakes from happening at all.
Late issuance
Failing to provide CIS statements on time can lead to penalties and strained relationships with subcontractors. You can set up reminders or use automatic scheduling software to prevent this from happening. Late submission is extremely bad practice and should be avoided at all costs.
Deduction disputes
In some cases, subcontractors may question the amount deducted or the rates that have been applied. Keeping clear and consistent records of payments and deductions can help avoid such disputes and provide explanations.
CIS statements are a critical component of the Construction Industry Scheme, and it’s important all contractors and subcontractors know how they work. When working with Contractwise, all CIS-related challenges can be made easier, simply contact our expert team today for more information.