The Construction Industry Scheme (CIS) can be complex, and even the most experienced contractors can make mistakes that lead to fines, penalties, or delayed refunds. In this blog, we’ll highlight the five most common CIS mistakes and offer tips on how to avoid them.
1. Not Verifying Subcontractors Before Payment
One of the most common errors contractors make is failing to verify subcontractors with HMRC before making payments. It’s essential to check their CIS status to ensure that the correct tax rate is applied. Failing to do so can result in higher tax deductions or penalties.
How to Avoid It: Always verify subcontractors using the HMRC online service before paying them.
2. Missing Monthly CIS Returns
Contractors are required to submit monthly CIS returns to HMRC, even if no payments were made to subcontractors. Missing these returns can lead to £100 fines and additional penalties if the delay continues.
How to Avoid It: Set up reminders and ensure that you submit returns on time each month.
3. Incorrectly Applying CIS Tax Deductions
Applying the wrong tax rate can be costly. If a subcontractor is not registered, contractors must apply a 30% deduction instead of the standard 20%. Incorrect deductions can lead to overpaid tax or missed refund opportunities.
How to Avoid It: Double-check your subcontractor’s CIS status and apply the correct deduction rate.
4. Failing to Register as a Contractor
Many contractors fail to register with HMRC, leading to retrospective tax deductions and fines. If you’re paying subcontractors, registration is a must.
How to Avoid It: Register as a contractor with HMRC before hiring subcontractors.
5. Not Keeping Accurate Records
Failing to maintain clear and detailed records of all payments and tax deductions can result in disputes or delays when claiming refunds or during HMRC audits.
How to Avoid It: Keep accurate, up-to-date records of every payment made to subcontractors, along with the deductions applied.
Conclusion:
CIS compliance can be tricky, but avoiding these common mistakes will help you stay on track and avoid unnecessary penalties. If you’re unsure about your obligations or need help navigating the CIS process, reach out to CIS Refund Portal for expert advice and assistance.
