The Construction Industry Scheme
The Full Story
The Construction Industry Scheme (CIS) is a set of tax rules for the building trade. If you’re a contractor, you need to take tax off your subcontractors’ payments and send it to HMRC. If you’re a subcontractor, this means tax is already taken from your pay before you get it. At the end of the year, these deductions go towards your tax bill — and in many cases, subcontractors are due a refund. At Your Accounting Club we specialise in construction accounting, we understand the complexities HMRC impose on the industry. Get in touch for a no obligation quote.
Who Is Affected?
The Construction Industry Scheme (CIS) mainly affects contractors and subcontractors who work in the construction industry, including builders, labourers, and trades such as electricians, plumbers, and roofers. It applies to individuals, partnerships, and limited companies. However, not everyone in construction falls under CIS — the scheme does not cover payments for work such as architecture, surveying, scaffolding hire (with no labour), carpet fitting, or the delivery of materials. Businesses outside construction who spend less than £3 million a year on construction work are also excluded from registering as contractors
CIS For Subcontractors
As a subcontractor, you must be registered as self-employed with HMRC and also register to be paid under the Construction Industry Scheme (CIS). This allows contractors to deduct tax at the standard rate of 20% from your pay. Each month, your contractor must provide you with a deduction statement, which helps you keep track of the tax paid on your behalf. At the end of the tax year, these deductions are offset against your tax bill and, once your expenses are included, you may be due a refund. If you are not registered under CIS, contractors cannot verify you and will have to deduct 30% instead. In some cases, you may also be eligible to apply for gross payment status, which means you are paid in full without deductions, and you settle your tax directly with HMRC.
CIS For Contractors
If you are a contractor, you must register with HMRC under the Construction Industry Scheme (CIS) and verify all subcontractors you pay. Each time you make a payment, you are responsible for deducting tax at 20% (or 30% if the subcontractor is not registered) and passing it to HMRC every month. You must also give your subcontractors a monthly deduction statement so they can keep records of their tax. In addition, contractors are required to submit a monthly CIS return to HMRC showing all subcontractor payments and deductions made. Failure to do this on time can result in fines and penalties.
It is often the case that CIS contractor's may often work for other contractors and be deducted CIS. Limited companies can offset this deduction against their directors PAYE, sole traders can offset the deductions on their self assessments at the end of the year.