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The Construction Industry Scheme (CIS) affects the way that subcontractors in the construction industry pay tax in the UK. It means that the contractors they work for must deduct tax before paying them.
 

What is the Construction Industry Scheme?

Am I a subcontractor or a contractor?

Is being a subcontractor the same as being an employee?

Can a contract be exempt from CIS?

What do I need to do if I’m a subcontractor?

Subcontractors and Self Assessment

The Construction Industry Scheme (sometimes just called CIS) is a set of rules which affects the way that contractors working in the UK construction industry pay the subcontractors carrying out work for them.

Under CIS rules, contractors must make deductions from their subcontractors’ invoices, and report these to HMRC via a CIS return.

Similar to the way in which employers make deductions for their employees’ tax and National Insurance, these deductions are basically an advance payment towards the subcontractor’s tax bill for the year.

How much are CIS deductions?

This depends on whether or not the subcontractor is registered for the Construction Industry Scheme. Contractors must verify their new subcontractor with HMRC before any work starts, so they can confirm their registration and tax status.

This CIS registration status is important, because it affects how much the contractor must deduct from the subcontractor’s invoice before they pay it.

Learn more about a contractor’s responsibilities under CIS in our guide.

Contractors are hired to carry out specific tasks, and sometimes hire subcontractors to carry out work for them. It’s crucial that you know whether you’re considered a contractor or a subcontractor under the Construction Industry Scheme rules, so that you pay the right amount of tax and National Insurance and report the correct information to HMRC.

As far as the Construction Industry Scheme (CIS) is concerned, a subcontractor is a business or organisation which agrees to carry out construction work on behalf of a contractor.

Even if you hire employees or other subcontractors to help you complete the work, you can still be considered a subcontractor for CIS.

 
You might accept the contract as a self-employed sole trader or through your own limited company, or as some other type of business structure such as a partnership. Subcontractors can also be:

No, being a subcontractor isn’t the same as being directly employed by a contractor. Rather than working for the contractor as a regular employee, the contractor is basically your client.

That said, it’s the contractor’s responsibility to assess your employment status when you agree to carry out any work for them as a subcontractor. They should use HMRC’s Confirmation of Employment Status Tool (CEST) to do this – it’s not up to them to choose!
 

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Not every contract will come under CIS rules, for instance if the work is being paid for by a trust or a charity. There are also some circumstances when HMRC will exempt a contract from CIS.

For example

If a contractor pays a subcontractor to carry out work worth less than £1,000 on property which belongs to them (not including the cost of materials). Exemptions aren’t given automatically though, so you’ll need to call the CIS helpline on 0300 200 3210.

Does CIS only apply in the UK?

Yes, the Construction Industry Scheme only applies to work taking place in the UK. A UK firm can have a contract to carry out work overseas and CIS won’t apply. On the other hand, an overseas firm doing construction work in the UK might be subject to CIS, so always check!

If you do fit the criteria of a subcontractor working in the construction industry, then ideally you should register for CIS as soon as possible. Registering means that contractors will make deductions at the lower rate, and this can make it easier to manage your cash flow throughout the year.

You’ll also need to give information to the contractor you’re carrying out work for, so that they can verify your CIS registration status. The information you provide depends on how you operate your business:

Do I need to submit a CIS return?

It’s the contractor’s responsibility to submit a CIS return each month, so as a subcontractor you won’t need to worry about that bit.

You will still need to submit tax returns for your business as usual though.

If you’re a sole trader then the contractor you carry out work for will deduct CIS tax depending on whether or not you’re registered for the CIS scheme.

What does the tax-free Personal Allowance mean for sub-contractors?

The tax-free Personal Allowance is the amount you can earn before starting to pay tax. To explain why this is particularly relevant for sub-contractors, we’ll look at how it works for a regular employee.

If you work for an employer

If you’re a sub-contractor

So, if you’re a sub-contractor, it’s worth getting your return in as soon as possible, so you can reclaim any tax rebates sooner!

 
Learn more about our online accounting services for businesses like yours. Call the team on 020 3355 4047 and get an instant online quote.

About The Author

Elizabeth Hughes

A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible. Learn more about Elizabeth.

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