What is the Construction Industry Scheme?
If you work in the construction industry, you will likely be familiar with the Construction Industry Scheme, sometimes known as CIS. You may be unsure, however, of the details of the scheme and what you are obliged to do to remain compliant with it. Here is a complete overview.
HMRC set up this scheme in 1971 to collect taxes from the construction industry throughout the year, rather than asking for them as one annual payment.
HMRC brought in the scheme to minimise tax evasion and put construction workers on a firmer footing concerning their employment.
Under the scheme, contractors must deduct a sum from their subcontractors’ payments, which is used as an advance payment on the subcontractors’ tax and National Insurance.
Who has to take part in the scheme?
The Construction Industry Scheme is compulsory in the construction sector. If you are a contractor who pays subcontractors for construction work, you must register for CIS. This can apply to builders, property developers, gangmasters or labour agencies.
The scheme covers only subcontractors doing direct construction work, so it does not apply to architects, carpet fitters, scaffolding hire and workers on construction sites who aren’t doing construction work. If the construction work is being done on your property for reasons other than sale or rent, it isn’t covered by CIS.
If you are a subcontractor, you are not legally obliged to register but may face a higher tax bill if you do not. If you are a subcontractor earning above £30,000, you can apply for gross payment, which means you resolve your tax liability at the end of the financial year.
How to register
You can easily register through the HMRC website. There are separate ways to register for contractors and subcontractors – if you are both, you must register as both. You will need your company name, NI and UTR numbers and your VAT number if you have one.
What you have to do
Once registered for CIS, your first step as a contractor is to verify your subcontractors with HMRC. HMRC will tell you if they are registered and how much you need to take out of their payments.
If the subcontractor is registered with the scheme, you deduct 20% from each payment, if unregistered 30%, and if they are registered for gross payment status – meaning they are registered but not as taking part – you do not deduct anything.
HMRC will make all this clear, and we are always here, too, should you need specialist advice. To make the deductions, you subtract the percentage you have been told to from their payment, after taking away any amount the subcontractor spent on materials and VAT. HMRC will be able to advise you on details.
You will also need to pass on the deductions you make to HMRC by the 22nd of each month. They will set up a payment scheme to enable this. You will need to file monthly returns to HMRC by the 19th of each month. It is essential to do this on time and keep a record of all transactions.
We hope this makes your obligations with regards to CIS clear. Remember, we are here to advise you along the way and assist you in fulfilling all requirements.