The Contractor’s Income & Employment Tax (CIS) are charged at a rate of 3 percent. This rate is paid by many contractors who are self-employed and also by large construction companies who are VAT registered. The main aim of this scheme is to curb tax avoidance by contractors. The CIS was introduced in order to counter perceived lax tax enforcement in the construction industry and some other businesses, which had offshore counterparts. It requires a contractor to deduct sums from any payments made to a subcontractor under the scheme and also to account for these deductions on behalf of the contractor to HMRC.
Contractor’s Income & Employment
The Contractor’s Income & Employment Tax (CIS) cover two main areas. The first area encompasses tax charged on the general constructions undertaken by the subcontractors and suppliers and the second area is that of site preparation and related costs. The general categories under the CIS include building work, installation, foundation work, alterations, drainage, earthworks, roofing, paving, electrical, ventilation, slip, escalators, escalator lift, platform lifts and furniture. Some of the accessories also fall into this category.
Types of Schemes in CIS
There are two types of schemes in CIS. One is the Standard Contractor Supervision Scheme (SCS), where the contractors pay a flat rate for all types of work done under the scheme and another one is the Individual Business Supervision Scheme (IBS). Both of them differ in the way the deductions are calculated. The IBS is the only scheme where the contractors and their suppliers pay a flat rate for all types of work done under the scheme and the Individual Business Supervision Scheme covers only a single supplier.
Types of Expenditure Covered
There are several types of expenditure covered in the Contractor’s Income & Employment Tax. These include the cost of materials and supplies, the cost of labor and the cost of salaries and wages to the subcontractors. The cost of construction work includes all those elements that relate to the construction and furnishing of the building or the structure and any additions to it. All the expenses incurred by the contractor during the course of construction will be included in his income. However, if the contractor is not paid during the course of work, his liability to pay will be reduced under the Contractor’s Income & Employment Tax.
Expenditure of Taxes
Another category of expenditure is that of taxes and other miscellaneous expenses. These include income tax, national insurance contributions, property tax, sales tax, PSTN and HST, estate tax, and various other miscellaneous taxes that are imposed by federal or provincial laws. There are different rules applied to different states and provinces and a contractor should check with the state authorities before calculating his income and expenditures. Once his calculations are finished, he has to include all the deductions he has received and then calculate his taxable income and the corresponding taxable rate.
A contractor cannot deduct expenses that are deductible for the main contractor. Only expenses that are indirectly made to the main contractor by the sub-contractor will be deductible. There are some common exceptions to this rule such as expenses that a sub-contractor incurs when he is acting as an agent for the main contractor. Also, expenses that are paid by the sub-contractor to the principal contractor before the principal contractor receives his pay from the government for the construction job can be deducted.
Classification of Expenditure
The last classification of expenditure is that of the Limited Liability Company. In Canada, all contractors must deduct at least ten percent of their gross revenue from their income to determine their taxable income. Contractors can include one or more Limited Liability Company in order to reduce the total number of deductions they need to make. If the contractor is a businessperson, his business partners or his relatives may also incorporate a limited company.
Self-employed individuals do not have to pay tax on income from self-employment but must pay tax on any income from other sources. Contractors and self-employed people must first compile their income and expenses so that they can apply for a tax certificate. This application must be filed with the CRA, tacking the self-employed percentage on to their income. If you are applying for a self-employed visa, you must attach all documents pertaining to your earnings and expenses to ensure that you meet the prescribed income and expense limits.