CIS SCHEME
CIS Registration & Compliance
If you’re a company, partnership or a self-employed individual working in the building or construction industry, you may have to pay tax under the Construction Industry Scheme (CIS)
The Construction Industry Scheme (CIS) is a scheme set up by the HMRC where contractors in the construction industry deduct money from subcontractor payments. They will then pass this on to the HMRC.
These deductions will become advance payments towards the tax and national insurance of the subcontractor. Both the contractor and subcontractor should register for the scheme before beginning work..
Who is a contractor?
A contractor is an individual or business that hires subcontractors to perform work on a construction project. Contractors are typically responsible for overseeing the project, managing resources, and ensuring that work is completed according to specifications and regulations.
It is the contractor’s responsibility to ensure that they deduct the required amount from the subcontractor payments and pass it on to the HMRC.
Who is a subcontractor?
A subcontractor is an individual or business entity hired by a contractor to perform specific tasks or services on a construction project. Subcontractors are often skilled tradespeople who carry out specific aspects of the project under the direction of the contractor.
The subcontractor does not need to do anything for CIS aside from register, although this is not technically mandatory. However, it is in their best interest to do so, as failing to register will result in a higher deduction rate.
What are the CIS deduction rates?
The deduction rates for CIS are as follows:
30% for unregistered subcontractors
20% for registered subcontractors
0% for subcontractors with ‘gross payment’ status.
What is gross payment status?
A subcontractor is an individual or business entity hired by a contractor to perform specific tasks or services on a construction project. Subcontractors are often skilled tradespeople who carry out specific aspects of the project under the direction of the contractor.
The subcontractor does not need to do anything for CIS aside from register, although this is not technically mandatory. However, it is in their best interest to do so, as failing to register will result in a higher deduction rate.
For gross payment status, the contractor will pay the subcontractor in full, and it lies with the subcontractor to pay all their taxes and National Insurance at the end of the tax year through Self Assessment.
To qualify for this status, subcontractors need to demonstrate that:
- They are tax compliant (i.e. have a proven history of paying tax and National Insurance
- Have a business based in the UK and in construction industry
- Have a bank account tied to their business
On top of this, HMRC will also inspect their turnover for the last 12 months. To qualify, their turnover must be:
- £30,000 or more for sole traders
- £30,000 for each partner in a partnership. Failing this, it can instead be a minimum of £100,000 for the whole partnership
- £30,000 for each individual director of the company. Failing this, it can instead be a minimum of £100,000 for the whole company