CIS / The Construction Industry Scheme can seem over whelming to anyone that is reading this for the first time. Take your time to read the whole page, and then if you have any questions please feel free to message us your CIS questions using the link on the bottom right hand side of this page.
What is CIS?
CIS stands for The Construction Industry Scheme, it is a UK government tax scheme implemented by HMRC to ensure that labour only tradesmen (known as Subcontractors) have their tax deducted by their client (known as the Contractor) when they are paid. The burden of operating CIS is mainly the responsibility of the person making the payments (the Contractor).
A Subcontractor – someone being paid by a Contractor
A Contractor – someone paying a Subcontractor
CIS has been put in place by HMRC to ensure that Subcontractors working in the construction industry pay their tax. Each time the subcontractor is paid by their client (The Contractor), tax will be deducted from the Subcontractors pay.
What Tax is deducted through CIS
There are three different tax deductions that can be made by the Contractor when paying a Subcontractor. Each one is defemined by HMRC and are as follows:
- 20% (standard rate),
- 30% (emergency rate),
- 0% Gross (if you meet a certain criteria).
Only HMRC can decide what tax treatment a subcontractor will receive but Subcontractor Support can advise you and make your application for you.
Having the tax deducted at source means that in most cases the subcontractor over pays their tax throughout the year and by using Subcontractor Support they are able to reclaim a proportion of this tax. Click here
to register with us for free to see how we can help you.
Should I register for CIS? Who Should Register for CIS Tax?
You need to understand that there are two types of CIS registration:
Register as a Subcontractor under CIS
- Subcontractor, someone or a company that is being paid in the construction industry
- Contract, someone or a company that is paying subcontractors for labour work
You should register
as a Subcontractor under the Construction Industry Scheme (CIS) if you carry out labour work within the construction industry, you work for a contractor and you’re one of the following:
- the owner of a limited company
- a partner in a partnership or trust
Every time you are paid, your client (The Contractor) will deduct the verified tax amount from your payment.
Every time the Subcontractor works for a new contractor they must be verified by the contractor using their National Insurance (NI) number and Unique Tax Reference (UTR).
Everyone eligible to work in the UK will have a NI number but UTR numbers are issued by HMRC once you register to be self-employed. A UTR can be likened to an individual’s account number with HMRC.
Subcontractors don’t have to register, but deductions are taken from their payments at a higher rate (30%) if they’re not registered. If you are registered, then the Subcontractor is deducted 20% from their pay.
See below on how to register or click here
Register as a Contractor under CIS
If your business is construction and you are paying Subcontractors you must register as Contractor under the CIS scheme with HMRC. You will need to verify each Subcontractor that works for you and then deduct the appropriate amount of tax as determined by HMRC when you register the Subcontractor.
As mentioned earlier, there are three different CIS status, Gross Paid, Standard (20% deduction) or Unregistered (30% deductions). These are defined by HMRC as follows:
Standard - 20% CIS deductions
If you have registered with HMRC under the CIS scheme you will be deducted 20% from the value of your labour part of your invoice.
Unregistered - 30% CIS deductions
If you have not yet registered for CIS and you are working in or supplying labour to the construction industry you will be deducted 30% from your payment.
At Subcontractor Support we are able to reclaim this money back for you. Please contact us on 020 7118 0097 or register your enquiry at http://www.subcontractorsupportltd.co.uk/contact-us/
. On average we are able to reclaim £2,500 a year for our labour only sole traders.
Gross Status CIS
The means that all payments you receive are paid with no CIS tax deducted. You are paid your gross payment from your client with no CIS tax deducted.
Only Subcontractors that meet certain criteria with HMRC can be gross certified. They are:
- You have previously paid your tax and National Insurance Contributions on time for a period of 12 months.
- Have a labour only turnover of £30,000 or more.
- You have a business bank account through which you operate your business.
How to register for the Construction Industry Scheme
To register for CIS you must first be registered with HMRC for self assessment and have received your unique tax reference.
You can register for the CIS with Subcontractor Support for free or directly with HMRC.
If you register with Subcontractor Support we can get your UTR and register you for CIS at the same time. II you register with HMRC you will need to open a gateway account, register for self-assessment and then register for CIS. It is a three step process with HMRC and one quick and easy form through Subcontractor Support.
to register for UTR & CIS with Subcontractor Support.
What happens once Registered?
Once you’ve registered and you start work you need to issue your UTR and NI (for sole traders) and UTR and company registration number to your contractor so that they can deducted the appropriate level of tax from your pay.
A contractor must make monthly returns of its payments to subcontractors to HMRC, even if no payments have been made. This is to inform HMRC of all the payments and tax deductions it has made to each subcontractor that month.
CIS, the detail….
Contractor or subcontractor?
You are deemed a contractor
under CIS if you engage subcontractors to perform any form of construction activity, whether you're in mainstream construction, such as property developers, or if during the course of your main business activity you spend £1 million a year on construction, as may be the case with a housing association for example.
Under the definition of construction work are included building, groundwork, alteration, decorating, repair and demolition.
are sole traders or companies that undertake construction work for contractors. All subcontractors must register for CIS in order to avoid a 30% tax deduction when paid by the contactor. Subcontractors registered under CIS will be taxed 20% at source unless they qualify for gross payments (see below). Click here
to register for the scheme
Limited Company or sole trader
Generally, Limited Companies are the Contractor and Subcontractors are Sole Traders.
Generally, Limited Companies pay the Sole Traders to carry out the work
Or, put another way
Generally Contractors pay the Subcontractors to carry out the work
With this in mind the Contractors are Gross certified and the Subcontractors have 20% (Standard Rate) deducted from their pay.
Are you both a contractor and a subcontractor at the same time?
It's common for construction businesses to be paid by a contractor for construction work, while they pay for their own subcontractors to do work for them at the same time.
When you're being paid by a contractor for construction work you are a subcontractor and you must follow CIS rules for subcontractors. However, when you're paying your own subcontractors you must abide by the CIS rules for contractors.
How to reclaim your CIS Tax?
Subcontractor Support are able to carry out all CIS related activities on your behalf, including but not limited to
Contact Us Today
- CIS Registration
- CIS Payroll
- CIS Monthly Returns
- CIS Deduction Certificates
- CIS Reclaim
so we can get started in helping free your time, allowing you to grow your business. 020 7118 0097 http://www.subcontractorsupportltd.co.uk/contact-us/
Self Employed Subcontractor or Employee? Are you staying compliant?
When does CIS tax not apply?
CIS does not apply to:
- CIS only relates to labour in the construction industry. It is not deducted from materials or plant.
- Professional work carried out by businesses such as architects and surveyors is not covered.
- Payments made to employees working within the construction industry, since payments to employees are covered by the Pay As You Earn (PAYE) system of deduction of tax at source.
- Anyone not working in the construction industry
Please note there are some small exception to the above where CIS does not apply so please ensure you follow HMRC guidelines or get in touch with Subcontractor Support