The Construction Industry Scheme (CIS) is a tax system that affects how building companies handle their payroll. If you work in construction, you need to understand CIS payroll rules. Let us understand in more detail What is CIS and does it affect your Payroll?
What Is the Construction Industry Scheme (CIS)?
CIS is a special tax system made by HMRC for construction workers. It controls how main contractors pay their subcontractors.
Under CIS, contractors must take tax money from what they pay subcontractors. This tax money goes straight to HMRC as early tax payments.
From April 2025, any business that spends over £3 million yearly on building work must follow CIS rules. This makes the scheme much bigger than before.
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How Does CIS Affect Your Payroll?
CIS payroll works differently from normal payroll systems. Here’s how it changes your payroll:
For Contractors
Contractors must sign up for CIS and follow special payroll rules. You must check each subcontractor before paying them.
Your payroll system must handle CIS tax cuts and monthly reports to HMRC. You might need special CIS payroll services to do this properly.
For Subcontractors
Subcontractors get less money because tax is taken out first. This tax money is used to pay your yearly tax bill later.
CIS Tax Deduction Rates
CIS takes different amounts of tax based on whether you’re signed up:
| Status | Tax Taken | Money You Get |
|---|---|---|
| Signed up subcontractor | 20% | 80% of total pay |
| Not signed up | 30% | 70% of total pay |
| Special status | 0% | 100% of total pay |
If you sign up for CIS, only 20% tax is taken. If you don’t sign up, 30% tax is taken.
CIS Registration Process
Signing Up as a Contractor
All contractors must sign up with HMRC before making their first CIS payment. You need to:
Give your business details and how much you spend on building work yearly. Get a special number for CIS reports. Set up systems for monthly reports.
Signing Up as a Subcontractor
Subcontractors should sign up to pay less tax. If you don’t sign up, more tax is taken from your pay.
You need to prove your business details and tax history. If you sign up, only 20% tax is taken instead of 30%.
Work Covered by CIS
CIS covers lots of building work that affects your payroll:
Types of Building Work
Most building work is covered by CIS including making permanent or temporary buildings. Road and bridge work is included. Getting sites ready including foundations and access roads.
Work Not Covered
CIS doesn’t apply to normal employees on PAYE. Making building parts in factories is not covered. Design and survey work is not covered.
CIS Subcontractor Rules
Understanding CIS rules for subcontractors is important for payroll:
Checking Requirements
Contractors must check each subcontractor before paying them. This check decides how much tax to take. HMRC checking confirms if you’re signed up.
Payment Rules
Subcontractors must give invoices showing total amounts. Contractors work out tax cuts based on checks. Net pay is given after tax is taken.
Monthly CIS Returns and Following Rules
CIS rules mean you must send monthly reports to HMRC even if you made no payments.
Monthly Report Rules
Reports must be sent by the 19th of each month. You must include all subcontractor payments and tax taken. You must send reports even if you made no payments.
CIS Rule Checklist
Important steps to follow rules:
Keep good records of all subcontractor payments. Check subcontractor status before each payment. Send monthly reports on time. Pay tax money to HMRC with other payroll taxes.
HMRC gives big fines for not following rules, including money penalties for late reports.
HMRC CIS Rules and Fines
HMRC strictly enforces CIS rules with big fines for not following them:
Fine Structure
Late report fines start at £100 for each missed report. Wrong information fines can be £3,000 per report. Extra charges apply to late tax payments.
Record Keeping
Contractors must keep detailed records for at least three years. Records must include checking decisions and payment calculations. You must give statements to subcontractors.
Gross Payment Status
Some subcontractors can apply for special status to get full payments without tax taken.
Who Can Apply
Businesses must show good tax history and money stability. Money requirements vary by business type. Yearly checks make sure you still qualify.
Benefits of Special Status
Better cash flow by getting full payments. Less paperwork for both sides. Better business reputation and competitive edge.
Difference Between PAYE and CIS Payroll
Understanding the difference between PAYE and CIS payroll is important:
| Area | PAYE Payroll | CIS Payroll |
|---|---|---|
| Worker type | Employees | Self-employed |
| Tax taken by | Employer | Contractor |
| National Insurance | Both pay | Contractor only |
| Benefits | Yes | No |
| Reporting | Real-time | Monthly reports |
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CIS Payroll Services and Getting Help
Many businesses choose to get help with CIS payroll from accounting firms:
Benefits of Getting Help
Professional CIS payroll services make sure you follow complex rules. Expert knowledge reduces mistakes and fines. Time savings let you focus on your main business.
Choosing CIS Payroll Services
Look for providers with building industry experience. Make sure they offer full CIS help. Check they understand HMRC checking processes.
CIS Refunds and Year-End Work
At year-end, CIS tax cuts are matched against actual tax bills:
For Limited Companies
CIS cuts reduce corporation tax bills. Extra cuts result in refunds from HMRC. Special submissions are needed throughout the year.
For Sole Traders
CIS cuts are included in self-assessment calculations. Cuts reduce personal tax bills. Refunds are processed through self-assessment.
Technology and CIS Payroll Management
Modern payroll systems include CIS features:
Software Needs
CIS payroll software must handle checking processes. Links with HMRC systems make reports easier. Real-time reporting helps follow rules.
Digital Solutions
Cloud-based systems offer flexibility and access. Mobile apps let you manage payroll on-site. Automatic calculations reduce mistakes.
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Frequently Asked Questions
How does the construction industry scheme affect payroll?
CIS affects payroll by making contractors take tax from subcontractor payments. This creates extra admin work including monthly reports and checking processes.
What are CIS payroll services for UK contractors?
CIS payroll services help contractors manage their tax duties. These services include checking subcontractors, monthly reports, and rule monitoring.
How to register for CIS as a subcontractor?
Subcontractors sign up through HMRC’s online portal or by phone. You need business details, tax history, and proof of self-employment.
What’s the difference between PAYE and CIS payroll?
PAYE applies to employees with normal tax cuts, while CIS applies to self-employed building workers. CIS has higher tax rates and different reporting rules.
Do I need CIS if I’m self-employed in construction?
Yes, if you work as a subcontractor in construction, you’ll likely have CIS tax taken. Signing up reduces your tax rate from 30% to 20%.
Can I get a CIS refund?
Yes, if CIS tax taken is more than your actual tax bill, you can get money back through your self-assessment or company tax return.
What happens if I don’t follow CIS rules?
Not following rules results in fines, extra charges, and possible legal action. HMRC takes CIS rule-following seriously.
How often do I need to send CIS reports?
Monthly CIS reports must be sent by the 19th of each month, even if no payments were made to subcontractors.
Summary
The Construction Industry Scheme greatly affects payroll processes for building businesses. Understanding CIS rules helps you follow them and avoid costly fines.
Whether you’re a contractor managing subcontractors or a subcontractor getting payments, proper CIS knowledge is essential. Consider professional CIS payroll services to make sure you follow all HMRC rules.
The scheme is complex and needs careful attention to signing up, checking, and reporting. With proper systems and processes, CIS can be managed well while keeping your business running smoothly.
Parul is a dedicated writer and expert in the accounting industry, known for her insightful and well researched content. Her writing covers a wide range of topics, including tax regulations, financial reporting standards, and best practices for compliance. She is committed to producing content that not only informs but also empowers readers to make informed decisions.