The Construction Industry Scheme (CIS) is a tax deduction scheme. It involves tax being deducted at source from payments that relate to construction work. CIS will apply to payments made by a contractor to a subcontractor. It does not apply to employees as since payments to employees are covered by the Pay As You Earn (PAYE) system of deduction of tax at source.
What is covered by CIS?
CIS covers most construction work to:
- a permanent or temporary building or structure
- civil engineering work like roads and bridges.
For the purpose of CIS, construction work includes:
- preparing the site, eg laying foundations and providing access work
- demolition and dismantling
building work- alterations, repairs, and decorating
- installing systems for heating, lighting, power, water, and ventilation
- cleaning the inside of buildings after construction work.
You don’t have to register if you only do certain jobs, including:
- architecture and surveying
- scaffolding hire (with no labour)
- carpet fitting
- making materials used in construction including plant and machinery
- delivering materials
- work on construction sites that are clearly not construction, eg running a canteen or site facilities.
Contractor duties
If you are a contractor, you must register with HM Revenue & Customs. Then, before you pay a subcontractor you need to check their employment status to find out whether:
- They qualify as an employee (in which case you must pay them through PAYE like other employees).
- They are self-employed and registered as a subcontractor with HMRC. If they are registered, HMRC will tell you whether you should pay them gross or should make a standard deduction of 20% from payments.
If HMRC cannot verify the subcontractor, HMRC will tell you to make deductions at the higher rate of 30%.
You must verify that a subcontractor is registered by contacting the HMRC Construction Industry Helpline or by using the HMRC Online services.
If you need to make deductions, you give the subcontractor a written statement showing the details. You pay over the deductions to HMRC either monthly or quarterly, depending on the amounts involved. You also complete Construction Industry Scheme returns for HMRC whenever you pay subcontractors.
Subcontractor duties
If you are a subcontractor, you must register with HMRC by calling the CIS helpline before you start work.
Normally, 20% of the invoice value is deducted. If you are not registered with HMRC or they have been unable to verify you, 30% is deducted.
Any deductions made count towards the tax and National Insurance contributions you have to pay, either through tax self-assessment (if you are self-employed) or the PAYE system (if you are a limited company). If the deductions are more than the total due to HMRC, you can claim a refund at the end of the year.
Our friendly and efficient team can handle all of your CIS requirements, contact us for more information.