The Construction Industry Scheme (CIS) comes with lots of rules and regulations, and HMRC are pretty strict when it comes to keeping on the right side of them.
If you’re new to CIS or need a refresher, you can read our guides on What is CIS and How to Register for CIS to understand your obligations from the outset.
Here is everything you need to know about the consequences of incorrect CIS deductions and what you need to do next.
Overview of Article
• Contractors are responsible for making the correct CIS deductions.
• Errors mean HMRC will reclaim any tax owed from a contractor.
• Act quickly if you think that you have made a mistake.
• You can claim back overpaid CIS tax via HMRC.
• Verify subcontractors and work with us to prevent errors.
Who is Responsible for CIS Deductions?
First things first, who is responsible for CIS deductions? If you are a contractor, you might not like this answer, but it is you! The law states that main contractors are responsible for deducting tax from payments made to subcontractors and then paying it directly to HMRC.
How much you deduct from these subcontractor payments depends on their own CIS status. If they are registered, you will need to deduct 20%. If they are unregistered, then 30% needs to be deducted. If a subcontractor has gross payment status, then no payments need to be deducted, as they handle their own tax at the end of the financial year.
If you are unsure how these roles apply to your business, our guide on How CIS Works for Contractors and Subcontractors explains responsibilities in more detail.
What Happens if CIS Deductions are Wrong?
So far, so simple, right? On paper, yes! Mistakes can happen, though, especially if you have a large number of subcontractors all with different CIS statuses. If you do not make the right deductions, then HMRC are going to look to you to pay back the money that they are owed, not your subcontractors. This can have all kinds of knock-on effects on your cash flow, and that is something that is much more complex for construction companies to begin with.
How to Resolve Errors
Wondering how to correct CIS errors? It depends on the error that was made and when you made it. If it were a simple admin error, such as entering the wrong UTR, then you should be able to amend this using HMRC’s CIS Online Service. This is by far the quickest way to fix straightforward errors. For more complicated mistakes, you will want to contact the CIS helpline and get advice specific to your situation.
Some contractors opt to adjust for the error in their next CIS return. This works well for over-deductions where a simple adjustment on the following month’s return will rebalance your books.
You need to make corrections as soon as possible, as mistakes are much easier to deal with within the same tax year.
How to Claim Back Overpaid CIS Tax?
You can claim a repayment of your CIS deductions if you’re a limited company subcontractor or an agent of a limited company. You can also make a claim if you have paid too much tax or National Insurance. You need to provide the company name, telephone number and address, along with your PAYE reference number, company unique tax reference and of course, the estimated overpayment amount.
If you are wanting to deduct your repayment from Corporation Tax, VAT, or PAYE, you will need to provide details of amounts owed or becoming due, along with other applicable details. If you want your repayment paid into your bank account, just provide the details of that.
How to Prevent CIS Deduction Errors
Of course, the best way to avoid dealing with costly mistakes is to prevent them from happening in the first place. This begins with registering correctly and you verifying your subcontractors with HMRC before their first payment. This tells you whether their deductions should be 20%, 30%, or nothing at all.
If you haven’t completed this step yet, our guide on How to Register for CIS walks you through the process.
The next step is working with a trusted construction accountant. We have years of experience when it comes to dealing with CIS errors and will do the hard work on your behalf to make sure that they do not occur again.
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