The Construction Industry Scheme (CIS) relates to contractors deducting tax from a subcontractors’ payments which are associated with construction work. Tax payments are then passed to HM Revenue and Customs (HMRC).
All payments between contractor and subcontractor under a constructions contract which are not related to employment contract are subject to the CIS.
Contractors And Subcontractors
Contractors are businesses that pay subcontractors for construction work. This also included businesses that are not construction related but spend an average of more than £1 million a year on a construction in 3 year period.
Contractors may be a sole traders, partnerships and limited companies.
Subcontractor is a person involved in construction contract as being responsible to provide operations, staff or other subcontractors and receive payments for it.
Subcontractors may be self-employed, owning a limited company or being a partner in a partnership or trust. You don’t need to register for CIS if you are employee.
Contractor deducts 20% from the subcontractor’s payment and passes it to HMRC as advance payments towards tax and National Insurance bill.
In contrast to contractors – subcontractors don’t have to register for the scheme. However, in this case deductions would be at higher rate – 30% .
However, if you don’t wish to the payments being deducted by the contractor you can apply for the gross payment status. You will have to then pay your tax and national insurance at the end of the tax year.
If your work is related to both being contractor and subcontractor – you need to register for both.
You still need to register if your business is outside the UK but you do constructions work in the UK.
CIS Related Work
HMRC provides specification guide of work that falls under CIS scheme:
a permanent or temporary building or structure
Exceptions From CIS Include:
work on construction sites that’s clearly not construction, e.g. running a canteen or site facilities
making materials used in construction including plant and machinery
architecture and surveying
If your business falls under the CIS scheme, here are some steps to follow:
* CIS registration must be made before you take on your first subcontractor
* You must check if a person can be employed instead of subcontracting work
* To deduct right amount of tax, you must check with HMRC if your subcontractors are registered with CIS
* There is a requirement of filing monthly returns and keeping full CIS records