If you are a construction company operating in the United Kingdom, you need to learn about CIS payroll.
If you are hiring subcontractors for your construction projects, you need to implement CIS payroll for these subcontractors. You cannot pay them the same way as you would regular employees because they are subject to a different set of rules, which are outlined in CIS.
What is CIS?
CIS or the construction industry scheme is a government scheme that lays out the rules for how contractors pay subcontractors that work on their construction projects.
Basically, the CIS Payroll process requires contractors to deduct a certain percentage from their subcontractors’ monthly payments that they then send to the HM Revenue and Customs (HMRC).
HMRC uses these deductions to make advanced payments on the subcontractor’s income taxes and cover their National Insurance contributions.
Do all contractors need to have CIS payroll?
All contractors need to be registered with CIS if they hire subcontractors. Even if your business is not really involved in the construction sector, you might need to register with CIS if you have a lot of construction projects.
Any business that has an average annual expenditure of at least £1 million on construction over 3 years is considered a contractor and will need to register with CIS and apply CIS payroll for their subcontractors.
Do subcontractors need to be registered with CIS?
Subcontractors don’t need to be registered with CIS, but they will still be subjected to CIS payroll. This means that contractors will ask and verify if a contractor is registered with CIS and will still make deductions from the subcontractor’s monthly payments.
Subcontractors are subjected to different deduction rates depending if they are registered on unregistered. A registered subcontractor has a 20% deduction rate while an unregistered one will have a 30% deduction rate.
What is a CIS payroll company?
A CIS payroll company is a company that specializes in helping contractors meet their obligations to their subcontractors and the HRMC under CIS.
Most companies will have regular employees and subcontractors, and these regular employees will not be part of CIS payroll. So your payroll department will have to have two different payroll systems.
Regular payroll departments are trained in PAYE, which will be used to process regular employees’ payments. They might not be familiar with the CIS payroll and may require additional training to implement it properly.
Having a CIS payroll company can save you time and money. It will also ensure that you are meeting all your obligations under CIS which is important as there are penalties that your company will incur if these obligations are not met. Looking for the bespoke payroll solution for the industry? Eebs is the great source of CIS Payroll.
