A guide to the Construction Industry Scheme (CIS)

TheConstruction Industry Scheme (CIS)is a set of HMRC rules that contractors have to follow when using subcontractors. A contractor is anyone, whether a sole trader or limited company, who employs the service of another, regardless of their status.

It basically means that money is deducted from subcontractor’s wages and paid to HMRC in the form of CIS tax, which acts as an advance payment of the subcontractor’s tax and National Insurance.

This is different from being employed, and it’s also different from self-employed people in other industries, who usually get their payments without any tax deducted.

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When a contractor uses a subcontractor, they have to decide whether that subcontractor is self-employed or should be employed by them.

If they decide they’re self-employed, and the services they provide fall under the remit of CIS, the contractor will need to deduct money from their pay to account for CIS tax. That means the sub-contractor will be paid either 80% or 70% of their invoice totals, excluding any amounts for VAT, materials and tool hire.

For CIS, a contractor is anyone who uses a subcontractor for work in construction or who spends over £1million a year over a three-year period. A subcontractor is someone who is employed by a contractor. Some people might fall into both categories.

What works fall under CIS?

CIS covers most construction work across different trades.

Jobs that are covered:

• Preparing the site, e.g. laying foundations and providing access works
• Demolition and dismantling
• Building work
• Alterations, repairs and decorating
• Installing systems for heating, lighting, power, water and ventilation
• 清洗后在建筑有限公司nstruction work

Jobs that arenotcovered:

• Architecture and surveying
• Scaffolding hire (with no labour)
• Carpet fitting
• Manufacturing of materials and plant machinery used in the construction industry
• Delivering materials
• Work on construction sites that’s clearly not construction, e.g. running a canteen or site facilities

See theGovernment’s sitefor more details of what is and isn’t covered by the scheme.

What does CIS mean for contractors?

If you’re a contractor then you shouldregister with HMRC for CIS.

You need to decide whether your workers are employed or self-employed. You can do this using anHMRC tool on employment status.You’ll then be responsible for making the right deductions from contractors, depending on whether or not they’re CIS registered.

All contractors have to report to HMRC with details of payments and deductions they have made. Not doing so could lead to penalties.

Things to keep in mind

• Any work that falls under the guise of CIS should be paid through the CIS scheme, no matter how small or large.
• If you supply construction services directly to homeowners rather than to a contractor, this doesn’t fall under CIS so the customer still pays you gross on the full amount of your invoice.
• CIS Registration isn’t instead of registering as self-employed, but as well as. It’s also possible to be a contractor and subcontractor at the same time, so you may have to register as both.
• You can apply to HMRC for ‘gross payment status’, which allows a contractor to pay you without making any deductions at all, so you should be paid 100% of your invoices.
• If you trade as a limited company, CIS applies to companies as well as to individuals. You can find government guidancehere.
• If you’re VAT registered, CIS deductions aren’t withheld on the VAT element of your invoice.

CIS might seem like an inconvenience, but once you’ve got your head around it, it’s easy enough to keep on top of.