What is CIS?
CIS stands for Construction Industry Scheme.
Under the scheme, contractors make deductions from their payments to subcontractors. They then pay the amounts they deduct over to HMRC, and they count as advance payments towards the subcontractors tax and National Insurance.
Am I a Contractor or Subcontractor?
You are a contractor if you pay a subcontractor for construction work.
You are a subcontractor if you do construction work for a contractor.
Do I need to register with HMRC?
If you are a contractor, yes.
If you are a subcontractor, you don’t have to register, but if you don’t, the contractor you are working for will deduct a higher amount from the payments they make to you.
If you fall under both categories, you have to register as both.
What type of work falls under CIS?
CIS covers most types of construction work to temporary or permanent buildings and structures. It also covers things like civil engineering works to roads and bridges.
There are a few exceptions. For example, you don’t need to register if you only do certain types of work, including:
- Scaffold hire, as long as there is no labour
- Carpet fitting
- Producing materials that are used in the construction industry, for example, plant and machinery hire
- Certain work on a construction site which isn’t construction, for example, providing food and beverages to site employees in a canteen style environment
- Architecture
- Surveying
There are further details about what is and isn’t covered by the scheme in HMRC’s guide. It can be a bit of a minefield – please get in touch with us if you’re not sure and we’ll be happy to help.
If I’m a subcontractor, how much tax is taken off me?
When you send your first invoice (or sometimes before the contract begins), you’ll be asked for your UTR (Unique Tax Payer reference) – it’s a good idea to include this on your invoice. Your UTR will be on various documents issued by HMRC – for example if you’re self employed, it will be on letters asking you to file a tax return. If you’re a limited company, it will be on letters asking you to deliver a company tax return.
The contractor will use your UTR to verify you with HMRC.
If you register with HMRC as a subcontractor, they will deduct 20% of the labour element of your invoice. If you don’t register, they’ll deduct 30%.
If you supply materials too, the deduction won’t apply to this amount. When you send an invoice, make sure the split between labour and materials is clear.
What happens to the tax that is taken off me?
The contractor will pay the amount over to HMRC, usually monthly. They will issue you with a monthly deductions statement for each tax month that you’ve had a deduction. It’s important that you keep hold of these documents, as your accountant will need them to reclaim the right amount of CIS deductions.
‘Reclaiming’ the amount deducted from you depends on if you run a PAYE scheme where you pay tax and NI deducted from employees over to HMRC. If you do, you’ll need to file an EPS return through your payroll system detailing the amounts you have had deducted from you. Usually, this amount is then deducted from your PAYE bill, so you get the relief pretty quickly.
If you don’t run a PAYE scheme (or you do, but it doesn’t require you to pay tax and National Insurance over to HMRC):
If you’re self employed
The tax you’ve paid will then be deducted from your self assessment tax return at the end of the year.
If you’re a limited company
You’ll need to deduct the amount on your Corporation Tax return (CT600) at your year end.
What do I need to do when I’ve registered?
As a contractor, you will need to run verification tests on all subcontractors which will tell you how much tax you need to deduct from their payment.
You’ll also need to complete a monthly return to HMRC (CIS300) detailing the total amounts paid and deducted from each of your subcontractors.
The CIS tax return and payment is due by the 19th of each month (for the tax month before, ending on 5th of the month).
As a subcontractor, you don’t need to do anything but keep hold of your monthly statements.
Is there anything else I need to know?
If you’re also VAT registered, you’ll need to consider the VAT reverse charge for building and construction services. You can find out a bit more about this here.
What if I need more information?
You can call HMRC’S CIS helpline on 0300 200 3210.
You can also ask your accountant to help you with both the registration process and the monthly returns.
If you don’t already have an accountant or would like to enquire about moving to us, please contact us.
