If you run a construction business, the chances are you’re already familiar with the construction industry scheme (CIS).
This is one of the topics we get the most questions about from our construction clients – with specific definitions and rules to understand for contractors and subcontractors, and monthly filing deadlines to remember, it can be hard to get to grips with.
But as long as you know your obligations and have the support of a construction accounting specialist, operating under the CIS doesn’t have to be confusing.
What is the CIS?
The CIS is an HMRC tax-deduction scheme that applies to contractors and subcontractors in the construction industry.
Under the scheme, contractors must deduct money from the payments they give to subcontractors for construction work, and pass it on to HMRC.
These deductions count as advance payments towards the subcontractor’s tax and National Insurance contributions (NICs).
Who has to register for the CIS?
Contractors are required to register for the scheme, while subcontractors don’t have to – but they may have to pay tax at a higher rate if they don’t.
You’ll count as a contractor if you pay subcontractors for construction work, or if your business has spent more than £3 million on construction in the 12 months since you made your first payment.
If you carry out construction work for a contractor, you’ll count as a subcontractor.
It is possible to count as both a contractor and a subcontractor under CIS, in which case, you are still required to register.
What kind of work is covered by CIS?
The scheme covers most construction work, including preparing a site, demolition and dismantling, building work, alterations, repairs and decorating, installing systems for heating, lighting, power, water and ventilation, and cleaning the inside of buildings after construction work.
There are a few exceptions, however, for people or businesses that only do certain jobs. These include architecture and surveying, scaffolding hire, carpet fitting, making or delivering materials, and additional work on a construction site that’s not part of the construction process.
How does the CIS work?
The way you put all of this into practice depends on the type of work your business is carrying out and where you sit in the construction supply chain at each point in time.
As a brief guide, contractors will need to follow these steps:
- Register for the CIS on GOV.UK before you take on your first subcontractor. Before doing this, make sure you’ve got their employment status right and they definitely should be a subcontractor rather than an employee. If you give HMRC the wrong status, you could be fined up to £3,000.
- Verify with HMRC that your subcontractors are registered with CIS. You can do this through HMRC’s online service or through CIS software.
- Make deductions from payments at a rate of 20% for registered subcontractors, 30% if they’re unregistered, or 0% if they have ‘gross payment’ status. Before making the deduction, take away the cost of materials the subcontractor has incurred.
- File a CIS return by the 19th of every month following the last tax month, telling HMRC about the payments you’ve made to subcontractors. If you didn’t make any payments in a given month, you don’t have to file a return but you do need to tell HMRC no return is due.
- Pay HMRC in the same way you make PAYE and NICs payments. These are due by the 22nd of the next tax month, or the 22nd after the end of the quarter if you pay quarterly. The deadline is the 19th if you pay by post.
- Tell HMRC about changes in your business, such as a new address, a change of business structure, stopping trading or temporarily pausing using subcontractors.
Bear in mind this is just an outline – to make sure you’re running the CIS correctly and avoid running into any problems with HMRC, it’s important to get expert advice.
Get in touch to talk about the CIS.