Common CIS registration mistakes: Avoid these costly errors

Construction Industry Schemes (CIS) are a mandatory compliance requirement in the UK for all contractors and subcontractors.?Many businesses in the UK make costly mistakes during the CIS Registration process, which can lead to fines and payment delays. HMRC may even investigate.?We highlight the most common CIS mistakes to help you avoid penalties and stay compliant.

Failure to register for CIS in time

The most common mistake made by CIS contractors is to not register before beginning construction.?Before making payments, contractors must register with HMRC. They also need to complete the CIS Verification Process for subcontractors.?Subcontractors that do not register could face CIS tax deductions up to 30% instead of the usual 20%.

What to do:

• Ensure that subcontractors are registered with the CIS in a timely manner before undertaking any construction project.
• Subcontractors should be checked to ensure they are CIS-registered in order to avoid CIS tax deductions that are incorrect.

?Registration incorrect or incomplete

Incorrect or incomplete information provided during CIS registration could lead to delays in processing and possible HMRC scrutiny.?Including incorrect National Insurance numbers (NI), business details or tax references are common errors.

What to do:

• Check all the information carefully before submitting your CIS registration form.
• Avoid CIS compliance issues by keeping accurate records of your business details and tax references.

Misclassification of workers as contractors or subcontractors

A CIS compliance issue can arise if you don’t understand the difference between a subcontractor and a contractor.?Subcontractors are paid after deductions for CIS tax. Contractors must deduct CIS tax.

What to do:

• Check out HMRC’s guidelines for the Construction Industry Scheme definitions.
• If you are unsure about your classification, seek professional advice to avoid making mistakes with the Construction Industry Scheme.?The Infinity Group will help you clarify your classification to ensure compliance.

Failure to deduct the correct tax rate

Contractors who do not check the CIS registration status of subcontractors may end up applying the wrong tax rate and causing overpayments or payments.

What to do:

• Verify subcontractors before paying using HMRC’s CIS verification process.
• To ensure CIS compliance, use the correct deduction rate (20% for subcontractors registered and 30% for those not registered).

Neglecting monthly CIS returns

Contractors are required to submit monthly CIS reports to HMRC detailing all payments to subcontractors, tax deductions and other information.?Late submissions can result in CIS fines and penalties, as well as investigations.

What to do:

• Remind yourself of the deadline for CIS returns (normally on the 19th day of every month).
• Avoid CIS fines and penalties by using accounting software and professional services.?The Infinity Group provides expert help in managing CIS monthly returns.

Overlooking CIS Gross Payment Status Eligibility

Some subcontractors qualify for the gross payment status. This allows them to receive their full payment without CIS tax deductions.?If you do not meet the eligibility criteria, this status can be revoked or rejected.

What to do:

• Make sure you comply with HMRC requirements for tax, turnover and business conduct.
• To ensure compliance with the CIS, maintain proper financial records.

Ignoring CIS penalties and compliance checks

Penalties can be imposed for non-compliance, ranging anywhere from fines for late filing to HMRC investigations.?Warning letters are often ignored by businesses, which can exacerbate their CIS compliance problems.

What to do:

• HMRC Notifications: Respond quickly
• Keep abreast of changes to CIS regulations and continue to comply with the Construction Industry Scheme.

Right-to-Work Checks: What You Should Not Miss

Contractors must perform right-to-work checks as part of CIS registration to verify that subcontractors have the legal authority to work in the UK.?If these checks are not performed, penalties, fines and legal issues can result.

What to do:

• Before engaging any subcontractors in construction, verify their right to work.
• Check your work eligibility documents according to HMRC and Home Office guidelines.
• Keep records of your right-to-work checks in order to prove compliance with HMRC.

Final Thoughts

It is important to avoid common CIS mistakes in order to ensure compliance, minimise tax deductions and prevent costly CIS fines and penalties.?Contractors and subcontractors who stay informed and follow best practices can streamline the CIS Registration process in the UK. They can then focus on growing their business.

Need Help with CIS Registration?

Infinity Group can help you with every step. We will guide you to navigate CIS requirements and verify subcontractors. We will also conduct checks on right-to-work and ensure compliance with HMRC.?Contact us for professional assistance!

FAQs (Frequently Asked Questions)

Who is eligible to register with CIS?

Contractors and subcontractors who are involved in UK construction must both register with CIS.?As part of the CIS process, contractors must verify subcontractors prior to making payments.

2.?What happens if you don’t register?

Subcontractors who fail to register may face higher CIS tax deductions (30% rather than 20%) and possible fines or penalties.

3.?Can I claim back the CIS tax that I have overpaid?

Subcontractors can reclaim CIS taxes they have paid in excess by submitting a return of tax at the end of the year.

4.?How can I verify if a contractor is registered with CIS?

Contractors can check the CIS registration of subcontractors through HMRC’s online CIS Verification process or by contacting HMRC.

5.?How do I qualify for gross payment status?

The gross payment status allows for subcontractors to be paid in full without CIS tax deductions.?HMRC has set certain requirements for qualifying businesses, including turnover, tax compliance and business conduct.

6.?Why is it important to check for right-to-work in CIS registrations?

Checking the rights to work of subcontractors is essential to ensure they are allowed to work legally in the UK.?These checks help businesses avoid penalties and fines for hiring unauthorised workers.