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Taking care of tax in the construction industry

January has now become the time of year when self-employed workers set about putting their taxes in perfect order, with the online – and final – self-assessment tax return deadline falling at the end of the month.

Many construction workers – including builders, plumbers, tillers and more – are liable to have to submit self-assessment forms due to the varied nature of the industry and its work. To be a successful and reputable tradesman it is crucial that workers keep their own finances in order or take on an account to manage their money for them.

Her Majesty’s Revenue and Customs (HMRC) is well aware of the nature of payments in the construction industry and how they are not as straightforward as other industries when it comes to tax. As a result of this it has put the Construction industry Scheme (CIS) in place to set out the rules for how payments to subcontractors for construction work must be handled by contractors in the construction industry.

The scheme is largely applicable to contractors and subcontractors working in the mainstream construction sector, but can also apply to businesses or organisations that have a high annual spend on construction.

The scheme is aimed at aiding contractors, subcontractors and the companies that use them. Contractors must register with the scheme to check whether their subcontractors are registered, among other obligations including submitting monthly returns.

Subcontractors must themselves register with HMRC and must keep the tax authority informed of any changes to their business structures and details. Subcontractors have to make a return of their profits each year, and their tax liability is based on that return. If the subcontractor has already paid tax through payments on account or had deductions made by their contractors, then HMRC calculates from the annual return whether the amount already paid or deducted is greater or less than the amount due. Repayments from HMRC or balance payments by the contractors can then be made.

HMRC issues a full and comprehensive guide on CIS on its website, which also includes guidance on the appointment of tax agents.