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The Construction Industry Scheme (CIS) rules set out how tax is managed by contractors and subcontractors working in the UK construction sector. Contractors have several responsibilities under the rules, so in this article we’ll go over what you can expect from CIS.

What do contractors need to do for CIS?

Under Construction Industry Scheme (CIS) rules, contractors who hire subcontractors to work on construction jobs in the UK must be CIS registered. Once signed up, it’s the contractor’s responsibility to:

  • Verify their subcontractors’ status
  • Deduct money from their subcontractors’ payments
  • Submit monthly CIS reports
  • Send deductions to HMRC as an advance payment towards the subcontractor’s tax bill
VAT registered businesses which sign up for CIS may also be affected by the VAT Domestic Reverse Charge.

How do contractors register for CIS?

The process of registering as a contractor for CIS is the same as setting up as a new employer for PAYE although the subcontractors you hire won’t be your employees. Once you’re signed up, HMRC will send you a confirmation letter.

You must be CIS registered if you are a contractor who hires subcontractors for construction work.

Verify a subcontractor’s CIS status

The amount of money a contractor deducts from the payments they make to a subcontractor is based on whether or not the subcontractor is CIS registered.

Subcontractors aren’t required to register for CIS (so don’t panic if you check their status and they’re not signed up!) but you will take deductions at a higher rate if they’re not.

You can verify a subcontractor’s status using the free online service, or through your CIS software if you have it. You’ll need to provide your:

It’s also your responsibility to double-check if they should be treated as a subcontractor rather than as an employee using HMRC’s Confirmation of Employment Status Tool (CEST).

What information do I need from my subcontractor?

Along with their name, the details you need from your subcontractor depend on what sort of business structure they operate their own contractor business as:

  • Sole trader: Their Unique Taxpayer Reference (UTR) number and National Insurance number
  • Limited company: The company name and registration number, and company UTR number
  • Partnership: The nominated partner’s details, and the partnership’s trading name and UTR number

 

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Do I need to verify a subcontractor each time I pay them?

You won’t need to check a subcontractor’s CIS status every time you pay them, but you will need to verify them again if you haven’t included them on a CIS return in this tax year, or in the previous two tax years.

How much do I deduct from a subcontractor for CIS?

HMRC will tell you what rate you should use for a subcontractor’s deductions when you verify their CIS status. The table below explains which rates will normally be used.
 

Subcontractor CIS Status Rate
Subcontractor is CIS registered 20%
Subcontractor is not CIS registered 30%
Gross payment status 0%

When do I need to submit a CIS return?

As a contractor you’ll need to send a CIS return to HMRC every month and tell them about the payments and deductions you make for your subcontractors. Your CIS return can be submitted online or through your CIS software if you use it.

Do I need to tell subcontractors about information on a CIS return?

Yes, you’ll need to give your subcontractor a CIS statement each time you deduct money from their payments. This helps them complete their tax return, but it’s just as useful for you too – so any issues can be spotted and sorted out sooner!

Make sure you issue each subcontractor with their CIS statement within 14 days of the tax month ending. A tax month ends on the 5th of each month. For example, 6th May – 5th June.

 
Learn more about our online accounting services for businesses. Call 020 3355 4047 to chat to the team, and get an instant online quote.

About The Author

Dean Salmon

I'm an AAT and ACA qualified Chartered Accountant with over 13 years experience working with businesses, contractors and sole traders. I also love watching live music, and quizzes! Learn more about Dean.

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