There are elements of CIS that can be confusing to those who are unfamiliar with it, so here we take a look at what you need to know as a self-employed professional working in the construction industry.
What is the Construction Industry Scheme?
CIS is a tax deduction scheme designed to reduce levels of fraud and tax evasion within the construction sector.
It works by taking a certain percentage of a subcontractor’s earnings upfront, which then goes toward their tax and National Insurance (NI) – this can also be handy for the subcontractor as it helps to spread their tax liabilities over the financial year.
These advanced payments are taken by the contractor who will then pay them onto HMRC.
Registering for the Construction Industry Scheme
A contractor must register for the scheme.
A subcontractor doesn’t have to register, but in not doing so, the deductions taken from their pay are set at a higher rate.
There are three different CIS tax rates:
- A subcontractor who is registered will have a 20% deduction rate.
- For those who are not registered, this figure increases to 30%.
- Some subcontractors will have a ‘gross payment’ status, which is set at 0% - in this case, it is up to them to pay their own tax and NI at the end of the tax year.
There are certain requirements to qualify for gross payment, for example, proving that a business is up-to-date with all tax liabilities and filings and passing a 12-month turnover test.
There may be certain situations whereby it would be mandatory for a subcontractor to register, and that would be if you were also a sole trader, the owner of a limited company or a partner in a partnership or trust.
Am I a contractor or a subcontractor when it comes to CIS?
If you’re unsure whether you fall under a contractor or subcontractor status:
A contractor:
- pays subcontractors for construction work.
- might not have a business that carries out construction work, but has spent more than £3m on construction in the 12 months since you made your first payment.
A sub-contractor:
- Carries out construction work for a contractor.
It is possible to fall under both categories, in which case you’d need to register as both.
CIS contractor responsibilities
If you are a contractor, then you’ll have certain duties that you’ll need to carry out, such as:
- Ensuring you register for CIS before you hire your first subcontractor.
- Checking whether or not your subcontractor is CIS registered.
- Deducting either 20% or 30% from the subcontractor’s payments and pay to HMRC.
- Filing monthly returns and keeping full CIS records – if you fail to do this then you may receive a penalty.
- Keeping HMRC up-to-date with any changes to your business.
What counts as work covered by the Construction Industry Scheme?
CIS covers most construction work that involves a permanent or temporary building or structure, as well as civil engineering work, such as roads and bridges.
Other examples include:
- Prepping the site for work and cleaning the inside of a building after work has been completed
- Repairs/alterations
- Decorating
- Installing systems for heating, lighting, power, water and ventilation
- Demolition
You won’t need to register for CIS if you:
- Carry out work in architecture or surveying
- Fit carpets
- Make materials used in construction and deliver said materials
- Hire out scaffolding (with no labour)
- Work on a construction site, but it has nothing to do with construction (such as running site facilities)
Dolan Accountancy
With years of experience, Dolan Accountancy provides just about everything you need in an accountancy company, all wrapped up in one low-fixed monthly fee.
Award-winning, Dolan Accountancy offers a combination of experience and great service and is both fully FCSA accredited and an APSCo Trusted Partner.
