A guide, not advice. This explains how things generally work. A licensed insolvency practitioner will tell you what applies to your company or to you.
CIS Deductions and HMRC
The Construction Industry Scheme (CIS) sets out rules for how contractors deduct money from subcontractors' payments and pass it to HMRC. For construction businesses, CIS creates particular tax compliance challenges - and unpaid CIS deductions are a common source of difficulty.
Our Manchester-based, ICAEW-licensed practitioners have experience helping construction companies with CIS and other tax issues.
How CIS Works
Under CIS:
- Contractors deduct money from subcontractors' payments (at a standard rate, or a higher rate if the subcontractor is not registered)
- The deductions are paid to HMRC, counting towards the subcontractor's tax and National Insurance
- Contractors must register for CIS, verify subcontractors, and submit monthly returns
Why CIS Causes Cash-Flow Issues
- Cash flow - deductions made from subcontractors must be paid to HMRC, even if the contractor is waiting for payment from the client
- Compliance burden - registration, verification, and monthly returns
- Penalties - late or incorrect returns attract automatic penalties
- Reverse-charge VAT - since 2021, certain construction services use the reverse charge for VAT, affecting cash flow further
What Happens When CIS Deductions Are Unpaid
If a contractor cannot pay the CIS deductions to HMRC:
- HMRC enforcement - demands, distraint, and potentially a winding-up petition
- Director conduct - CIS money is held on trust for HMRC, and non-payment can attract scrutiny
- Insolvency - unpaid CIS is an unsecured claim in a liquidation, but the underlying obligations remain serious
Your Options
- Time to Pay arrangement with HMRC for unpaid CIS
- CVA - restructure debts including CIS arrears while continuing to trade
- Administration - protection while the business is rescued or sold
- CVL - orderly closure where the business is not viable
Speak to a Licensed IP
CIS creates particular compliance and cash-flow challenges for construction businesses. Our Manchester-based practitioners will assess your position honestly and advise on the best route - free and confidential.