If you’re a contractor hiring a subcontractor, then you may have to register for the Construction Industry Scheme to contribute towards taxes.
What is the Construction Industry Scheme (CIS)?
The Construction Industry Scheme (CIS) is designed to prevent self-employed subcontractors from avoiding paying tax.
Under CIS, contractors deduct income tax directly from subcontractor payments and pass this on to HM Revenue and Customs. These deductions will come from the subcontractor’s gross earnings, and act as advance payments on the subcontractor’s tax and National Insurance.
Do I have to register for the Construction Industry Scheme?
If you’re a contractor, then you’ll have to register for CIS.
You’ll be classed as a mainstream contractor if your main business is in construction and you pay subcontractors for construction work. This applies to builders, labour agencies, property developers and gangmasters/leaders.
If your business isn’t in construction, but you spend an average of over £1 million per annum over any 3-year period, then you’ll be classed as a “deemed” contractor and have to register for CSI. This might apply if you’re a housing association or an arm’s length management organisation (ALMO).
Work classed as construction under the CIS includes:
- Site preparation, such as laying foundations
- Demolition and dismantling
- Building work
- Alterations, repair work and decorating
- System installation (including heating, lighting, power, water and ventilation)
- Cleaning work after the work is finished
Am I exempt from registering for the Construction Industry Scheme?
Subcontractors don’t have to register, but the deductions taken from their payments will be at the higher rate (30%) if they aren’t.
If you’re a contractor and you’re paid for by a charity or trust, then CIS won’t apply to your work. This is also the case if you’re paid for by the head teacher / governing body on behalf of a local education authority.
If you’re working on the subcontractor’s own property and the work is worth less than £1,000 (excluding materials) you can call the CIS helpline for an exemption.
If you’re a deemed contractor and paying for work on a property that’s for your own business use (and not for sale or rent) then you’ll be exempt. As with mainstream contractors, you can call the CIS helpline for an exemption if your work is worth less than £1,000 excluding materials.
Specific work not covered by CIS
There are further exemptions to the Construction Industry Scheme, which consist of the following jobs:
- Carpet fitting
- Delivering materials
- Scaffolding hire (without labour)
Also included in this is work on construction sites that isn’t actually construction, such as site facilities or working in a canteen.
If your subcontractor is registered for the CIS scheme, you’ll deduct 20% from their gross pay. If they’re not registered, or they haven’t given you their unique tax payer reference (UTR), then you’ll deduct 30%.
It’s important that you work out their gross pay correctly so that the submission are correct. You don’t need to include charges for VAT, material and equipment.
Is my UTR number on my CIS card?
Yes, you should find your UTR number on your CIS card or certificate. It’ll consist of 10 digits, with an extra 3 digits if it is your card / certificate number.
How to register for CIS
You can register for CIS online by registering as a new employer, though be warned it can take up to 2 weeks to confirm. You should therefore register at least a fortnight before you take on a subcontractor.
You can sign up as a sole trader, limited company or partnership. Just make sure you use the same name and business address to pay contractors that you use to register.
How does the Construction Industry Scheme work?
Once you’ve registered, you’ll need to take the following steps:
- Verify your subcontractors with HMRC by checking they’re in the CIS scheme. You can do this for free online. When on this website, you’ll have to add some basic information about your business alongside any information your subcontractors give you.
- When you pay your subcontractor, you’ll have to make the relevant deductions from their gross pay – 20% or 30%.
- When you registered, HM Revenue & Customs will have set up a payment scheme for you. Use this to pay the CIS deductions.
- For the final step, you’ll needs to file your monthly CIS returns.
Filing monthly CIS returns
Your CIS returns are due on the 19th of every month. You can file them using an online tool, or by using accounting software like KashFlow.
In KashFlow, CIS for contractors and subcontractors is calculated from your invoices. Our accounting software also produces reports for contractors so you can see the value of your invoices, including deductions for CIS, materials and more.
Make sure your CIS returns are accurate, as you could face penalties of up to £3,000 for giving the wrong employment status to a subcontractor.