An Introduction To The Construction Industry Scheme (CIS)

Contractors registered with the Construction Industry Scheme (CIS) usually make deductions from payments to subcontractors which are then paid to HM Revenue and Customs (HMRC) on a monthly basis.

Contractors

Registering with HMRC for CIS as a Contractor is essential if they pay subcontractors for construction work, or they are a business that does not do construction work but have spent more than £3 million on construction in a 12-month period.

A contractor may be a sole trader, partnership or a limited company.

For the purpose of CIS, construction work includes the following:

• preparing the site – for example, laying foundations and providing access works
• 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

A contractor does not have to register for CIS if undertaking the following work:

• 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’s clearly not construction – for example, running a canteen or site facilities

Before paying a new subcontractor, a contractor must verify them with HMRC.

HMRC will confirm if they are registered for CIS and the rate of deduction to use.

The CIS deduction rates are as follows:

• 20% for registered subcontractors
• 30% for unregistered subcontractors
• No deduction is made for subcontractors that have gross payment status.

Contractors must provide subcontractors with a payment and deduction statement within 14 days of the end of each tax month.

Contractors must also file monthly returns with HMRC to report deductions from payments to subcontractors by the 19th of each month and pay the deductions to HMRC by the 22^nd of each month.

CIS records must also be retained for at least 3 years after the end of the tax year.

Subcontractors

If you are a subcontractor, you should register for CIS with HMRC if you undertake construction work for a contractor and are either a sole trader, partnership, or a limited company.

Subcontractors do not have to register for the scheme, but deductions are taken from their payments at the higher rate of 30% if not registered.

Subcontractors can apply for gross payment status if they do not want deductions to be made by contractor.

The deductions made by the contractors count as advance payments towards income tax and National Insurance liabilities for sole traders and partners, or PAYE tax and National Insurance for limited companies.

Businesses based outside the UK

If a business is based outside the UK but undertake construction work as a contractor or subcontractor in the UK, then the same CIS rules apply.

For more information on the Construction Industry Scheme, please contact your local Perrys branch.