HM Revenue and Customs implemented the Construction Industry Scheme (CIS) to make paying taxes fair for both employed and self-employed individuals, ensuring that the self-employed construction workers comply with their CIS tax obligations. It has also effectively helped the UK tax authority to reduce the cases of tax evasion in the construction industry.
If you are already CIS-enabled, it is your obligation as a contractor to give your subcontractors a copy of their CIS statements with the deductions made on their tax payments.
This article gives you all the information you will need about CIS Payment and Deduction Statements, including their importance, how rate deductions are calculated, when to submit them, what to put under the statements, and how to get them.
What Are CIS Payment and Deduction Statements (PDS)?
CIS statements are receipts or written proofs of the CIS tax deductions that contractors subtract from their subcontractors’ payments, given to subcontractors within 14 days at every conclusion of the tax month. These deductions serve as the subcontractors’ advance payments to HM Revenue and Customs for their income tax and National Insurance contributions (NIC).
Contractors are legally required to provide CIS statements to their subcontractors to whom deductions are made, most especially to those who are registered for payment under deduction. Issuing CIS deduction is optional if the subcontractors are under gross status, are not CIS-registered, or are under CIS exemption but HMRC encourages contractors to provide all their subcontractors with CIS statements regardless of their registration status.
Although typically sent through email, CIS deductions statements can only be provided in electronic form if both the contractor and subcontractor agree with it or if subcontractors can easily download and print them.
Why Does CIS Deductions Statements Matter?
As a contractor, providing your subcontractors with copies of CIS statements is an act of tax compliance in the construction industry. HMRC penalises contractors up to £3,000 when they fail to hand over such records or provide inaccurate information, whether deliberately or negligently.
HMRC also considers it a good practice when you send all your subcontractors their CIS tax deduction documents, regardless of their employment status, as having copies of them will be very beneficial such as in the case of making an underpayment or overpayment.
CIS statements are a great help too, whether you are a contractor or a subcontractor, especially when HMRC conducts tax compliance investigations into your tax affairs, serving as strong proof of your tax compliance.
If you are a subcontractor whose deductions aren’t made properly, receiving payment more than you normally get or less, CIS deductions statements will serve as your reminder that you still need to pay your remaining CIS tax dues or help you obtain tax rebates.
CIS statements also allow you to claim in-year repayments or non-standard claim repayments, responsibility or reimbursement for registers on Employer Payment Summary (EPS) tax returns, credit or tax refund with self assessment tax returns, and more.
How Do I Work Out the Deductions?
Once CIS-enabled, you are obliged as a contractor to verify the tax status of your subcontractors, whether they are CIS-registered, non-registered, or in gross payment status, as these are the basis of how much percentage you deduct from their payments or if no tax deduction is made at all.
Registered subcontractors get 20% deductions (standard rate) as advance payment of their taxes, non-registered or whom HMRC cannot verify get 30% (higher tax rate), whilst subcontractors on gross payment status automatically get zero CIS deduction (meaning, no calculations will be done although contractors are still encouraged to provide CIS statements for subcontractors under this status).
Generally, there are two steps that contractors use to calculate deductions in the construction industry. Firstly, you exclude the Value Added Tax (VAT) for subcontractors registered in VAT and compute the gross income from which the deducted tax amount will be applied.
Secondly, you deduct from the gross payment the cost of items used in the construction industry operations (construction work materials, consumable stores, fuel except used for travelling, plant hire, and the cost of prefabrication materials or the manufacture).
Ask your subcontractors for proof of construction work costs so you can make accurate deductions. If they cannot give such information for construction industry tax compliance, you can make a fair estimate of the actual costs.
When Should I Submit the PDS?
HMRC requires contractors to send their subcontractors their CIS statements within 14 days of each month’s end of the tax period. The accounting month typically begins on the 6th of the month and concludes by the 5th of the next month. For tax compliance, the statement must already be provided by the 19th.
When you pay your subcontractors twice or more in one month (as some subcontractors may request to be paid on a weekly basis), you can choose to send them one CIS statement covering the overall payment or issue several statements for every payment (usually depending on the software that you use), for as long as you send them by the 19th.
However, in such cases as having sent CIS statements to your subcontractors even before you have filed your self assessment tax return and their deductions turn out to need changes, you will need to resend them again regardless of the tax month’s end.
If the subcontractor hasn’t received the CIS statement or lost it, they can ask the contractor for another copy. As a contractor, you can provide them with another copy but make sure that it is clearly marked as “Duplicate” to prevent tax compliance issues in the future.
What’s Included in CIS PDS?
There is no set format for CIS statements, but contractors must always include what HMRC requires and what contractors and subcontractors agreed upon. The list of general details which contractors need to include is provided by HMRC on their website. Contractors can also add to the following other information they deem necessary:
Information about the construction industry contractor:
- Name of contractor
- Address of contractor
- Details of payments and CIS deductions made at the end of accounting month
- Employer’s tax reference (11 digits)
Information about the construction industry sub-contractor:
- Subcontractor’s full name
- Unique taxpayer reference (UTR)
- Verification number (in case of high-rate deduction)
- Cost of materials
- Tax amount details (deducted and liable)
As long as you include the information above, you can always add more details or customise your own templates to fit your needs.
How Can I Get My CIS Statement?
For contractors, you can download from the HMRC website individual CIS deductions statements for each of your subcontractors and customise the templates according to your needs. You can also add CIS Contractor functions to your cash flow management software for easier processing.
In most accounting software, you can usually locate the CIS PDS in the Accounting menu. Go to the Reports tab and find the CIS Contractor option where you can see the monthly tax returns, online filing, and statements. Fill out the required information and you can then easily send the statements.
Whilst for subcontractors, it is your right to receive CIS statements from your contractors. In case you didn’t receive the statement or lost it for some reason, you can ask your contractor for another copy again, and it will be given to you marked “Duplicate” for future reference.
How Legend Financial Can Help
Tax professionals protect you from any legal trouble as they ensure you don’t fall into non compliance with construction industry tax regulations. Legend Financial has been sorting out taxes of businesses and individuals, whether employed or self-employed, on a regular basis for more than a decade, so you can always trust us for your UK tax needs.
From registration to assistance with CIS Payment and Deduction Statements, Legend Financial is here to relieve you of the hassling and complex tax work related to the construction industry. Please feel free to reach us anytime for help.
Payment and deduction statement. (1 September 2008). Retrieved from gov.uk: https://www.gov.uk/government/publications/construction-industry-scheme-payment-and-deduction-certificate
Send CIS Payment and Deduction Statements. (n.d.). Retrieved from Central: https://central.xero.com/s/article/CIS-Payment-and-Deduction-Statements
CIS Payment and Deduction Statement. (n.d.). Retrieved from Paterson Hall Accountants: https://www.pattersonhallaccountants.co.uk/cis-payment-and-deduction-statement/
What is a CIS Statement? (n.d.). Retrieved from Brian Alfred: https://brianalfred.co.uk/guides/cis-statement/
Construction Industry Scheme. (n.d.). Retrieved from Citizens Advice: https://www.citizensadvice.org.uk/Global/Migrated_Documents/advisernet/12020310-ewsni-construction-industry-scheme-guide-for-contractors-and-subcontractors-pdf-5.pdf