Avoid common CIS mistakes

A CIS contractor can go wrong at ten points: verifying, deducting, giving statements, filing, paying, employment status and keeping records. Each has a simple fix.

Before you pay a subcontractor

Paying before you verify

Verify every new subcontractor with HMRC before the first payment. HMRC tells you whether to pay gross, deduct at the standard rate or deduct at the higher rate. If you deduct too little because you assumed their status, HMRC can assess you for what you should have deducted. Keep the verification number with your payment records.

Entering the wrong details

The details you give must match exactly what the subcontractor gave HMRC when they registered: for a sole trader their name, UTR and National Insurance number, and for a company its name, UTR and registration number. A temporary National Insurance number cannot be verified. If HMRC cannot match the details, it tells you to deduct at the higher rate. Get the details in writing and check them before you submit.

Not verifying a returning subcontractor

You do not need to verify a subcontractor you last included on a return in the current or previous 2 tax years, and you pay them on the same basis as last time unless HMRC has told you otherwise. After a longer gap, verify them again before you pay.

Deducting from materials

The deduction comes off the labour part of the payment only. Start from the invoice total without VAT, take off what the subcontractor paid for materials, then apply the rate. Ask for receipts, and if there are none, estimate the cost of the materials. Travelling expenses and subsistence stay in the amount you deduct from.

Treating an employee as a subcontractor

CIS registration does not decide employment status. You must check whether the person should be your employee, and on each return you declare that the subcontractors listed are not employees. A wrong declaration can bring a penalty. HMRC's employment status check shows its view.

Each tax month

Not giving payment and deduction statements

You can be penalised for failing to give statements or for negligently giving incorrect ones.

Filing the return late

A late return brings a penalty that rises the longer the return stays outstanding.

Forgetting the nil return

Paying the deductions late

Filing the return does not pay the deductions. They are due separately, so pay them as soon as you have filed. You may be charged interest and penalties if you pay late.

Records

Throwing records away too soon

Keep a record of the gross amount of each payment without VAT, any deduction and the cost of materials, with the verification numbers and the statements you gave. If you cannot show your records when HMRC asks, you can be penalised.

If you find a mistake

Correct a return through the CIS online service, or call the CIS helpline for help. If you failed to deduct tax, HMRC may waive your liability when you took reasonable care and the failure was an innocent error.