What is the Construction Industry Scheme?

The Construction Industry Scheme - A Brief Guide for Subcontractors

25 November 2018

The Construction Industry Scheme (CIS for short) is a system where Contractors ma ke tax deductions from Subcontractors pay. The deducted money is then passed onto HMRC. Basically, it’s a form of advance tax and National Insurance contributions.

From the HMRC website,

“For this scheme, you count as a contractor if you either:

pay subcontractors for construction work
your business doesn’t do construction work but you spend an average of more than £1 million a year on construction in any 3-year period”

If you’re working for a Contractor as defined above, and you’re not an employee of the contractor, then you are a Subcontractor. As a Subcontractor, you don’t have to register for the scheme. The tax will still be deducted from your pay, but at the higher rate of 30% compared to just 20% if you had registered.

Some types of work are not part of the CIS so no money will be deducted from your pay. You can find a list of what work is and isn’t included in the CIS on the HMRC website.

You may be able to avoid having any tax deductions from your pay by the Contractor (this is known as having ‘gross pay status’). You have to be part of the scheme to apply for this though.

How do I register?

Registering with CIS is straightforward if you’re a sole trader. You can do it online via the HMRC website where you can set up a Government Gateway account if you haven’t got one already.

If you’re a limited company or partnership, you can still register but will need to complete a different form. These are also on the HMRC website. Just search for “What you must do as a Construction Industry Scheme (CIS) subcontractor”.

Who’s responsible for making sure my tax payments are correct?

Although the Contractor is making deductions from your payments and paying it to HMRC, it is still your responsibility to make sure you pay the correct amount of tax and National Insurance contributions.

Every month the Contractor will give you a statement of what you’ve been paid and what deductions have been made. It’s important you keep these statements as they’ll help with your Self Assessment tax return if you’re a Sole Trader or Partner.

At the end of the tax year if you’ve overpaid tax then HMRC will reimburse you the overpaid amount. If you’ve underpaid then you will need to make up the difference.

If you’re a Limited Company with gross payment status you’ll complete your Corporation Tax return as normal. If CIS deductions are made then they can be claimed back through the company’s payroll system. The HMRC website advises you to not try to claim the deductions back via your Corporation Tax return. If you do you may get a penalty!

Final Words

If you’re at all unsure about any aspect of the financial side of the Construction Industry Scheme then you should seek the expertise of an accountant.

Next time: If you’re a contractor under CIS, what are your tax responsibilities?

LSC Accounting Ltd. is an expert in the area of CIS, with many years of experience and hundreds of happy customers. We provide a friendly, efficient and cost-effective approach to accountancy. To discuss your requirements, you can either contact us through our website or call 0191 447 9119.

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