CIS – Construction Industry Scheme

What is the Construction Industry Scheme?

The scheme sets out the rules for how payments to subcontractors for construction work must be handled by contractors in the construction industry and certain other businesses. Each contractor will be required to make a tax deduction for their subcontractors which is then paid to HM Revenue and Customs.

The scheme covers all construction work carried out in the UK including jobs such as:

Site Preparation

Alterations

Dismantling

Construction

Repairs

Decorating

Demolition
There are exceptions, you are not required to register if you only do certain jobs, including:

Architecture & Surveying

Scaffold Hire

Carpet Fitting

Delivering Materials

Non-Construction Site Work

What types of businesses are covered by the scheme?

The scheme covers all types of business and others that work in the Construction Industry Scheme, including:

  • Companies
  • Partnerships
  • Self-Employed Individuals

These businesses can be:

Contractors

A contractor is a business or other that pays subcontractors for construction work. Contractors may be construction companies and building firms but may also be government departments, local authorities and many other businesses. Some businesses are counted as contractors if their average annual expenditure on construction operations over three years is equal to or exceeds £1m.

Sub-Contractors

A subcontractor is a business or other that carried out construction work for a contractor

Contractors & Sub-Contractors

Many businesses are paid by other businesses for construction work, but they themselves pay businesses that work for them too. Therefore when they work as a contractor they must follow the rules for contractors and when working as a subcontractor they must follow the rules for subcontractors.

How The Scheme Operates

All contractors must register for the Construction Industry Scheme. Subcontractors who do not wish to have higher rate deductions made from their payments should also register.

Contractors

When To Register

When you are about to take on and pay your first subcontractor.

How To Register

There are two ways to register for the scheme:

Phone: New Employer Helpline on 0300 200 3211
Internet: www.gov.uk/business-tax/construction-industry-scheme

HM Revenue and Customs will then set up a Contractor Scheme (and a PAYE Scheme if requested, see PAYE for more information) and you should receive your references through the post.

Sub-Contractors

When To Register

When you, your firm or your company are about to start work within the construction industry scheme

How To Register

To register as a subcontractor you must call the CIS Helpline on 0300 200 3210.

HM Revenue and Customs will then write to you to confirm your registration and provide all the information that you will need to give to your contractors before they pay you

Taking On Sub-Contractors

When you take on a new subcontractor, you must take the following details from them:

  • Their full name
  • Their National Insurance Number
  • Their UTR Number

You will then need to ‘verify’ them with HMRC. HMRC will tell you whether they’re registered for the Construction Industry Scheme (CIS) and what rate of deduction to use or if you can pay them without making deductions.

Making Deductions & Paying Sub-Contractors

When you pay a subcontractor you usually make some deductions from their payments. HMRC will tell you how much to deduct from a subcontractor’s payments when you verify them as stated above.

The construction Industry Scheme (CIS) deduction rates are:

  • 20% for registered subcontractors
  • 30% for unregistered subcontractors – i.e. just self employed
  • 0% if the subcontractor has ‘gross payment’ status – e.g. they don’t make deductions.

You must pay these deductions to HMRC – they count as advance payments towards the subcontractor’s tax and national insurance bill.

How To Make A CIS Deduction

To make a deduction from a subcontractor’s payment, start with the total (gross) amount of the subcontractor’s invoice.

Take away any of the following the subcontractor has charged you for:

  • VAT
  • Materials
  • Equipment which is not unusable (‘consumable stores’)
  • Fuel used, except for travelling
  • Equipment hired for this job (‘plant hire’)
  • Manufacturing or pre fabricating materials

Note that if they have not charged you any of the above, none of these deductions will be made.

Finally deduct the CIS percentage rate (given to you by HMRC, see above) from the amount left. You will be left with the net amount that you need to pay the subcontractor.

Subcontractors Monthly Returns

You must tell HM Revenue and Customs (HMRC) each month about payments you’ve made to subcontractors through your monthly return.

You can file returns by using:

  • The HMRC CIS online service
  • commercial CIS software
  • the paper CIS monthly return (CIS 300)- Call the CIS helpline to get a form.

On your return,you must declare that the subcontractors listed aren’t employees. You could get a penalty of up to £3,000 if you give the wrong employment status for a subcontractor on your monthly return.

You must also send a return for the months when you have made no payments to subcontractors. This is called a ‘nil notification’.

Deadlines

Send your monthly returns to HM Revenue and Customs by the 19th of every month following the last tax month – i.e. the month you submitted.

For example if you’re making a return for the tax month of 6th May to 5th June, it must reach HMRC by the 19th June or you may face a penalty.

Viewing What You Owe

View your HMRC online account to see any reports that you’ve sent and to find out what you owe.

How To Pay

View your HMRC online account to see any reports that you’ve sent and to find out what you owe.

Interest & Penalities

HMRC will usually tell you if they think that you’ve paid late – either in a letter or a notice through PAYE online. Interest is charged daily at 3%.

You may be charged a penalty if you do not pay on time or in full.