Common mistakes to avoid when registering for CIS.
CIS stands for Construction Industry Scheme. It’s a tax mechanism that allows contractors to save money for construction projects by having the government cover part of their subcontractor costs. However, as with anything related to taxes, people make some common mistakes. Read through six of the most common to stop you from making these mistakes.
#1 Forgetting to check that all material costs are allowed.
When you register for CIS, as a contractor, you will be responsible for all the materials subcontractors claim. They can only claim for materials used for the job you have hired them to do.
Most of the time, subcontractors don’t claim unallowed materials out of malice simply because they are unaware of what material costs are and aren’t allowed. If your subcontractors are unaware of this, they may add other costs to your cost sheets, such as staff facilities, tools, and even charges for other jobs. That’s why keeping up with the cost of everything is essential.
#2 Not mentioning who owns the material production facilities.
If your building project uses materials, these materials will have to come from a factory or plant. Whether we’re talking about concrete slabs or wooden panels, someone would have had to turn nature’s raw materials into something you can build with.
Something that not everyone knows about CIS registration is that CIS needs to know who owns the plant that produced your materials. Sometimes, your subcontractor owns the plant. Other times they buy materials from a third party.
If the plant is owned by a third party, CIS doesn’t necessarily need to know who they are. But, they will need to know that a third party supplies materials.
#3 Failing to understand what is and isn’t covered by CIS.
Another common CIS registration mistake is thinking the CIS Scheme covers more jobs than reality.
Before registering, read the terms and conditions, highlighting which jobs and industries are and aren’t covered by CIS. You may have to hire some people, such as designers, whom CIS will not cover. Therefore, ensure you know who is and isn’t eligible to be part of this scheme before you begin work.
#4 Missing people out.
On the flip side, another common mistake is not registering eligible subcontractors for CIS. This can cause you to spend a lot of money you are entitled to save. The reason for forgetting to register subcontractors under CIS might be that you only work with them for a short time, or they are only there for a small part of the project.
But, if they are a subcontractor doing construction work, it’s almost certain that you should notify CIS during your CIS registration.
#5 Putting subcontractors under PAYE.
Subcontractors are independent businesses for whom you hire the services. One common mistake contractors might make is falsely registering their subcontractors as PAYE instead.
When you work with someone for several months, it’s easy to assume they’re an employee. But, they are, in fact, a separate business. Making this mistake can seriously impact your CIS claim.
#6 Not verifying.
You will receive a verification number from the CIS website when you first register. This number is vital as you need it to deduct the correct amount from your subcontractors.