What is Construction Industry Scheme (CIS)?

The Construction Industry Scheme (or CIS) is a special way of taxing self-employed workers in the construction industry.

The Construction Industry Scheme was introduced by HM Revenue and Customs as a set of rules for tax and national insurance for those businesses and individuals working in the Construction Industry.

Under the CIS Scheme, contractors in the industry must deduct money from subcontractors payments and pass them to HM Revenue and Customs. The deductions then count as payments towards the subcontractor's tax and national insurance.

CIS will apply to all contractors and subcontractors, whether they are a sole trader, partnership or Limited Company working within the UK construction industry. The rules of the CIS scheme apply to all payments made by a contractor or subcontractor for the duration of the contract. They do not apply to employees on the payroll.

Work that is classed as "construction" under the CIS scheme includes; groundwork, general building including bricklaying, plastering, and roofing, alterations, repairs, and demolition.

What is a contractor or subcontractor?

Under CIS, the definition is quite complex, but it will likely apply to you for almost all building or construction work you do for anyone other than a private homeowner.

Contractors - business or individuals who deal with and supplied materials and labour to the client.

  • Contractors pay subcontractors for any construction work undertaken
  • Any business or individual that spends £1million or more per annum on any construction over a 3-year period

Subcontractors – are anyone that carries out construction work on behalf of the contractor.

  • Subcontractors can be any individual, body or organisation that is paid to undertake any construction work by a contractor
  • Any type of business can be classed as a subcontractor, be it a sole trader, partnership or Limited Company. It is important to remember that a subcontractor is not necessarily, and a self-employed individual, a large corporation could classify as a subcontractor within CIS
  • Any business or individual can be both a contractor and subcontractor at the same time

What do you need to do?

All contractors and their subcontractors must register with HMRC and the CIS Scheme.

Contractors

Contractors must register with HM Revenue and Customs as an Employer with HM Revenue and Customs.

Registration must be completed before the first payday and the process of registration can take up to 6 weeks. Once registered, you will receive a letter from HM Revenue and Customs that will provide you will all the information you need.

Subcontractors

Sole traders can register with HM Revenue and Customs for CIS by logging in with their Government Gateway ID. HMRC will require the name of the business or individual’s name including the UTR and NI Number.

If registration is required for a subcontractor you will need to make sure you use the same name and business address as first registered with CIS, otherwise, HM Revenue and Customs won’t be able to verify the CIS status.

Limited Companies and Partnerships

A form CIS305 will be required to be completed for the CIS.

Verification for CIS

Each contractor must verify with HMRC before they can be paid. This can be completed online, and you'll need to confirm:

  • Whether the subcontractor is registered for the CIS
  • The rate of deduction to use or if the contractor can be paid gross.

To apply to verify a subcontractor you will need the following information:

  • The Unique Taxpayer Reference (UTR)
  • Name of individual or company
  • National Insurance Number if they are a sole trader
  • Company Registration number if they are a Limited Company

If a contractor hasn't included a subcontractor on a CIS return in the current or last two tax years, then they will need to re-verify them.

Recording Payments – CIS Deducted

At the end of each month, the following must be calculated :

  • Gross value before subcontractor deductions and VAT (if applicable)
  • The amount deducted for this value when calculating the CIS deductions
  • The amount of CIS deducted

Submitting your Monthly CIS Return to HM Revenue and Customs

Once the subcontractor's details have been calculated, you need to file a return by the 19th of each month.

Paying CIS Deductions to HM Revenue and Customs.

CIS Deductions should be paid with the PAYE/NI deductions that have been made from your employee's salary payments. Payments need to be received by the 22nd of each month following the month for which you are filing.

Issuing CIS Statements

Once the return has been submitted to HM Revenue and Customs you will need to issue each subcontractor with a statement that declares the amount of CIS tax that you have deducted from their payments in that period, they can then claim these deductions against their income or corporation tax liability.

You must issue statements to subcontractors by the same deadline as the submission of the monthly CIS Return.

CIS Suffered

Companies that have deductions from income as subcontractors should set off these deductions against the amounts payable monthly or quarterly for PAYE/NIC. These should be done monthly, and the calculation should be shown sent via an EPS.

If a company’s own CIS deductions are greater than the PAYE/NIC the company should offset against future payments in the tax year. At the end of the tax year and once the final EPS has been submitted any excess of CIS deductions can be offset against any corporation tax liability or claimed back via a refund.

Contractors must keep a record of these amounts set off and a CIS132 record will need to be kept for each tax year.

How can Aspen Waite help?

Our payroll team can help with your CIS management - get in touch to discuss your requirements.

You can also contact HMRC directly on 0845 366 7899 or visit the GOV.UK Website for CIS Guidance.

Get in touch for expert advice and solutions for you or your business.

Call us on: 01278 445151