The Construction Industry Scheme (CIS) is an area of the tax rules which impacts the way that contractors and subcontractors who work in the construction industry pay tax.
How does the Construction Industry Scheme (CIS) work?
The CIS rules basically turn contractors into tax collectors if they use subcontractors for construction-related work. The contractor will register for CIS, and then take deductions from the payments they make to their subcontractors.
These deductions are reported and paid on to HMRC, and count as an advance payment towards the subcontractor’s tax bill.
What is classed as construction for CIS?
The ‘construction’ in Construction Industry Scheme covers a range of jobs, including site preparation, dismantling and demolition, decorating and repairs. The scheme only applies to work carried out in the UK – even if your business is based overseas.
Am I a contractor or a subcontractor?
This depends on who you work for. Contractors are hired directly by the client to carry out a job or project. A subcontractor is hired by that contractor for specific jobs.
Can I be both?
Yes! You might be hired by a contractor, and then in turn need to hire a subcontractor of your own, making you both a contractor and subcontractor at the same time.
Is it different for companies?
No – the Construction Industry Scheme covers all types of contracting business structures, so the rules will apply whether you’re limited company, in a partnership, or working as a self-employed sole trader.
What do I need to do for CIS?
This depends on whether you’re a contractor or a subcontractor. Contractors must:
- Register for CIS
- Deduct tax from the payments they make to their subcontractors
- Report payments and deductions using a CIS Return
- Give subcontractors a copy of their payments and deductions statement
- Pay deductions to HMRC
Subcontractors don’t have to register for CIS, but it can help. You’ll still be able to work as a subcontractor if you don’t register, but the contractor will make deductions at a higher rate. You’ll need to report your income and any deductions on your tax return whether you register for CIS for not.
How do I register for CIS?
This depends on whether you’re registering for CIS as a subcontractor or as a contractor. Setting up as a contractor follows the same process as becoming an employer for the first time, so you’ll need to register for PAYE.
If you’re a subcontractor who already operates as a sole trader, you can sign up for CIS online using your Government Gateway account. If you’re registering your business at the same time, you’ll need to sign up for Self Assessment and select ‘working as a subcontractor’.
To register a different type of subcontractor business, complete the form for your structure.
How do I register if I am a subcontractor and a contractor?
If you act as both a contractor and as a subcontractor, you will need to register for CIS separately for each. This is so that you pay the right amount of tax as a subcontractor and can submit CIS returns for your contracting work.
How are subcontractors paid under CIS?
Subcontractors are paid directly by the contractors who hire them. It’s the contractor’s responsibility to verify the subcontractor’s registration status and deduct CIS at the correct rate:
| When you need to use it | Deduction rate |
| If the subcontractor isn’t registered for CIS, or HMRC can’t verify them | 30% |
| For subcontractors who are registered for CIS | 20% |
| When the subcontractor has gross payment status and no deductions are made | 0% |
Can I reclaim overpaid CIS tax?
Yes – in fact it’s very common for subcontractors to overpay and reclaim CIS tax. The PAYE deductions an employer makes from an employee’s pay takes the tax-free Personal Allowance into account, but CIS deductions don’t.
This often results in a tax overpayment that you can reclaim once you submit your tax return – one of the many reasons why it’s good to get your return in as soon as possible!
Am I a subcontractor or an employee?
Employees generally work for an employer, and have an employment contract which sets out their role and responsibilities. Subcontractors tend to be hired by the contractor for a particular purpose, but as they’re self-employed it’s still their responsibility to sort out their own tax affairs – so make sure you understand your employment status!
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