Construction Industry Scheme (CIS) Guide
The Construction Industry Scheme (CIS) was introduced by HMRC to regulate payments in the construction industry. If you own a company that operates in the construction industry or does construction related work, or are an individual completing the work then you may need to register under the CIS scheme as a contractor or a subcontractor. In this scenario a ‘contractor’ is an entity that pays a subcontractor to complete construction work, whereas a subcontractor is the entity that actually completes the work.
The CIS taxation scheme sets out the rules for how payments to CIS registered subcontractors are made. The CIS is enforced throughout the UK and its territorial waters up to the 12 mile limit. Work covered under the scheme includes, but is not limited to site preparation, demolition, and construction or repairs. Not all activities on construction sites are deemed as construction operations under CIS. Activities such as medical or safety services for example are not included.
Normally it will be the contractor who decides whether the subcontractor will be operating within the CIS scheme; it is always worth calling HMRC to query this and to avoid nasty surprises from the tax-man. The direct number for HMRC CIS helpline is 0300 200 3210.
How does CIS work?
Under CIS, payments relating to construction work are taxed at source. The contractor for whom the work is being completed will deduct the tax before the monies are paid to the subcontractor who is completing the work. The rate at which this is deducted depends on the registered status of the subcontractor; however this is typically 20% for those who are CIS registered or 30% for those who are not.
It is possible to be classified as both a contractor and a subcontractor under the CIS scheme. If you are a subcontractor who subcontracts work out then effectively you are both a contractor and a subcontractor. Under this scenario you will be required to adhere to the rules of CIS and deduct taxation payments at source before making a payment to your subcontractor.
If you are concerned about this then please feel free to call one of the team on 033 3323 1199 and we can talk you through what you need to do.
Where payments are made to your company under CIS you should offset deductions during the tax year against the company’s monthly or quarterly liabilities. Example liabilities would be tax, National Insurance, or any payment deductions taken from your company’s own subcontractors. Before the introduction of RTI the company would account for any CIS deductions made from its payments and offset these against its own liabilities at year-end on a P35 form. Now it is done as often as the payroll is run, which hopefully will allow for quicker repayments should anything be due.
How to Register for CIS
All contractors must register with HMRC to be under CIS. As a subcontractor you do not have to be CIS registered, however if you are not then your payments will be deducted at source at the higher rate of 30%.
To discuss registering for CIS contact the Exchequer Accountancy Services team on 033 3323 1199, alternatively you can contact us via the form below.