Construction Industry Scheme
CIS returns apply to the Construction Industry Scheme. We can take care of this for you, ensuring that you stay compliant. Read below to see if this applies to you.
CIS regulations & obligations
The contruction industry has more regulations and obligations than almost any other type of industry in the world. They're huge and can feel daunting.
The CIS tax obligations are 99% always on the contractor.
If you are a contractor in the construction industry who subcontracts work to other people or businesses, it's likely you'll need to register as a Contractor for CIS.
Check below if this applies to you.
PAYE and IR35 always override CIS
PAYE and IR35 will always override CIS. What does this mean?
IR35 applies when the contractor subcontracts work to a limited company or the subcontractor is a large engager with work over £10.2m. In which case, CIS tax won't apply.
More commonly, you must consider if the subcontractor is actually an employee by the "badges of trade" set by HMRC.
A new subcontractor is likely to be classed as an employee where:
- They are told what work to do, as well as how, where and when to do it.
- They have to do the work themself.
- They can be moved from task to task.
- You hold the licences and they use your tools and materials for the job.
- They are contracted to work a set number of hours and get a regular wage or salary.
- They have an employment contract and work for a business which is not their own.
If this sounds like the situation to you, PAYE applies.
A subcontractor is likely to be self-employed if:
- They do the work, but they can also send someone else to do the job with similar skills in their place if they needed to.
- They have several customers at the same time.
- They can do the work how, where and when they like, if they meet the deadline set by the contract.
- They hold their own licences and use their own tools and source their own materials for the job.
- They run a business and take responsibility for its success or failure.
- They provide the main materials or tools they need to do your work.
If this sounds like your situation, CIS applies.
Click below for this for more detail to help you to decide the employment status.
CIS registration 6 steps
Six steps apply for Contractors using subcontractors.
- Registration (click below to get started).
- List subcontractors with their details.
- Verify subcontractors with HMRC.
- Deduct CIS if NET.
- Monthly returns submitted every month.
- Provide statement to subcontractors showing deductions for that month (think of it like a payslip).
FAQ's
What is classed as CIS work?
• Construction repair, alterations and demolition on buildings and land.
• Installation of systems of heating and air conditioning.
• Internal cleaning as part of a construction process.
• Painting & decorating.
• Managing a construction project.
What is excluded from CIS?
• Sign writing.
• Artistic works (statues).
• Architects design.
• Burglar alarms installation.
• Carpet fitting.
• Repair of lighting.
• Supply or repair of any free-standing equipment.
For a full list, have a check on HMRC here.
What does gross and net mean?
Once you have verified your subcontractor with HMRC, they will tell you whether the subcontractor is on a Gross or net pay arrangement and what % to deduct from their invoice.
NOT REGISTERED - A subcontractor not registered with HMRC, will require 30% deducting. Always advise any subcontractor to register if they want to avoid this higher tax amount.
NET - A registered subcontractor classed as Net, will have 20% deducted.
GROSS - A Gross subcontractor will not have any deductions. To qualify as a gross subcontractor, the subcontractors turnover will need to be over £30k as a self-employed subcontractor, or £30k for their split if they are in a partnership. This will be agreed with HMRC who will advise if they are on Gross pay.
What is deducted?
Labour, travel, cost of tools and subsistence as well as any profit on materials will be included in the calculations for CIS deductions.
Plant hire and materials at cost are not included in the calculations.
How often do subcontractors need verifying?
If you haven't used the subcontractor for 2 years, then they will need re-verifying.
Need some help with CIS? We’re here for you!
If you need some more advice and would like some help registering for CIS, verifying subcontractors and filing CIS returns, we are happy to manage this for you.