If you work in the construction industry and you’re self-employed, you’ve probably encountered the Construction Industry Scheme (CIS for short). The scheme is HMRC’s way of collecting income tax from subcontractors who work in the construction industry.
We’ll discuss exactly who is expected to register, how it works, and where you can sign up.
What is CIS?
A bit like how PAYE works for wages, the Construction Industry Scheme rules mean that contractors must make CIS deductions from the payments they make to their subcontractors. These deductions are paid on to HMRC as an advance payment towards the subcontractors’ tax bill.
How much will a contractor deduct for CIS?
- If you’re a subcontractor who is registered for CIS, deductions will be made at 20%
- If you are not registered, your CIS deductions will be taken at 30%
For example
A contractor has recently hired a self-employed subcontractor to help out with some construction work. The subcontractor earns £2,000 each month.
Because the subcontractor is registered for CIS, the contractor must withhold 20% of the subbie’s earnings for CIS when they pay them each month. If they weren’t registered, the deductions would be taken at 30% instead.
This means the subcontractor receives £1,600 per month, and will receive a CIS statement from the contractor to show tax deductions have been made.
The payments withheld from the subcontractor are sent on to HMRC as ‘advance payments’ towards their income tax and National Insurance bill, ready for when they submit their tax return.
The contractor must submit a CIS Return to HMRC to tell them about the payments they made to their subcontractors, and about the deductions that they make.
Who needs to register for CIS?
As a contractor, registering for CIS is a requirement when you have subcontractors. In some cases it’s also mandatory to register if you don’t do construction work yourself but have spent more than £3 million on construction, either within the last year or since you made your first payment.
As a subcontractor, it’s not a requirement for you to register for CIS, but if you don’t, contractors will make CIS deductions at a higher rate than if you were registered.
If this means that you end up paying too much tax though, you’ll be able to reclaim it once you submit your Self Assessment tax return. The sooner the better!
Is there a way to avoid CIS deductions?
Subcontractors can also apply to HMRC for Gross Payment Status. This allows you to receive payments at the full amount without any CIS deductions being made and leaving you or your accountant to sort it all out at the end of the tax year.
You will need to qualify for this first though, and it’s only available to those who can prove they’ve always paid tax on time in the past. There are other requirements too, such as demonstrating that last year’s turnover was at least £30,000 (excluding VAT and any materials) if you’re a sole trader.
Can I be a subcontractor and contractor at the same time?
It’s not unusual to be both a contractor and a subcontractor – if you qualify as both you will need to ensure you’ve registered under both categories.
Am I automatically enrolled to pay taxes under CIS?
No, both contractors and subcontractors need to sign up for CIS themselves. While it’s optional for subcontractors, it’s mandatory for contractors.
If you’re a contractor who pays subcontractors but not signed up to CIS, you could receive penalties even if your subcontractors have paid all of their taxes themselves.
What is the difference between CIS and employment?
CIS is a way of collecting tax, whereas being employed comes with rights such as paid holiday leave, protection against unlawful discrimination, and other statutory entitlements like sick pay or maternity leave.
When you’re getting what looks like a payslip each month showing your deductions and net wage, it can feel like you’re employed all over again – but remember, as a subcontractor you’re still classed as self-employed.
The only difference here is your contractor will take care of CIS for you and will state this on a written statement each month. This is referred to as a CIS statement, rather than a payslip.
How do I register for CIS?
You can register for CIS as a contractor, or register as a subcontractor online.
You’ll need your National Insurance number, along with your UTR number and VAT number if you’re VAT registered. Contractors will also need these details for each subcontractor they work with.
For more information and guidance, check out HMRCs guide for contractors and subcontractors. If you’d like to apply for gross payment status, you can do this once you’ve registered for CIS.
How do I complete a CIS return?
If you’re a contractor, you’ll need to let HMRC know about each subcontractor you’re working with by sending a CIS return every month. This involves keeping detailed financial records, which show how much you’ve paid them, and how much you’ve deducted for CIS.
You can submit your CIS return through the HMRC website, or alternatively, you can use CIS software.
Is there a deadline to submit my monthly CIS returns?
You’ll need to submit your monthly CIS returns by the 19th of each month.
The tax month starts on the 6th of the month and ends on the 5th of the following month. For example, if a contractor worked for you from May 6th – June 5th, the deadline to submit their CIS return would be June 19th.
What are my responsibilities as a subcontractor?
Even though your contractor will pay CIS on your behalf, it’s your responsibility to make sure the payments are accurate. If you pay too much (or not enough) it’s also your responsibility to correct this once you submit your Self Assessment tax return. Always keep your CIS statements in case you need them for reference!
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