Construction Industry Scheme (CIS) contractors are being warned that they must check that their tax deductions are correct as HMRC issues letters with a deadline
Contractors under the CIS tax scheme are being advised to check that their tax reductions are correct, as HMRC are issuing letters with a deadline for action.
CIS is a scheme for contractors and subcontractors that allows advance payments to HMRC for tax and National Insurance.
The warning comes from accountancy firm Azets.
HMRC are calling for action
HMRC have begun to issue letters to CIS contractors if they feel that the applied deductions are incorrect.
The letter states that the contractor will have 45 days from the receipt of the letter to check their records and verify that their subcontractors are on the correct CIS deduction rates when calculating the deductions to withhold.
After 45 days, HMRC can start a compliance check, and if any errors are found can then result in penalties for the contractor.
The ONS shows that the UK has around 2.2m workers in the construction industry, around 674,000 of which are self employed and can be CIS contractors.
CIS contractors should not ignore a letter
Joanna Gander, senior tax advisory manager at Azets, said: “It is the contractor within CIS that bears all the risk. If they do not apply the correct CIS deductions, HMRC will seek any CIS tax not deducted from the contractor.
“Whilst there is an offset mechanism available where the subcontractor has already included the income in their returns and paid the relevant taxes, there is often a significant time delay in the payment being made and the subcontractor’s reporting and payment deadlines, leaving the contractor exposed to the liabilities.
“Since April 2024, VAT compliance has been included in the compliance tests to obtain and maintain Gross Payment Status. This addition is likely to lead to an increase in the number of subcontractors having Gross Payment Status withdrawn.
“If contractors fail to update their records following a change in the subcontractor’s CIS tax status, the liabilities of CIS tax not deducted will fall to the contractor.
“We recommend contractors verify all the subcontractors they have included in their CIS300 returns in the last 12 months to ensure the correct CIS tax status has been applied. If errors are identified, the CIS300 returns should be amended to reflect the correct deductions.
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