CIS (Construction Industry Scheme)

Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC).

The deductions count as advance payments toward the subcontractor’s tax and National Insurance.

Contractors must register for the scheme. Subcontractors do not have to register, but deductions are taken from their payments at a higher rate if they’re not registered.

If you’re already registered as a contractor, you can sign in to CIS online to file your monthly returns or to verify a subcontractor.

Who counts as a contractor or subcontractor

Register as a contractor if either:

• you pay subcontractors for construction work
• your business does not do construction work but you have spent more than £3 million on construction in the 12 months since you made your first payment

Register as a subcontractor if you do construction work for a contractor.

You must register as both if you fall under both categories.

Work covered by CIS

CIS covers most construction work to:

• a permanent or temporary building or structure
• civil engineering work like roads and bridges

For the purpose of CIS, construction work includes:

• preparing the site - for example, laying foundations and providing access works
• demolition and dismantling
• building work
• alterations, repairs and decorating
• installing systems for heating, lighting, power, water and ventilation
• cleaning the inside of buildings after construction work

Exceptions

You do not have to register if you only do certain jobs, including:

• architecture and surveying
• scaffolding hire (with no labour)
• carpet fitting
• making materials used in construction including plant and machinery
• delivering materials
• work on construction sites that’s clearly not construction - for example, running a canteen or site facilities

The CIS guide for contractors and subcontractors has more detail on what is and is not covered by the scheme.

Your business is based outside the UK

The same CIS rules apply if your business is based outside the UK, but you do construction work as a contractor or subcontractor in the UK. Read more about how to register and pay tax if this applies to you.

Making deductions from payments

Under the scheme, all payments made from contractors to subcontractors, must take account of the subcontractors’ tax status. This may require the contractor to make a deduction, which they then pay to us from that part of the payment that does not represent the cost of materials incurred by the subcontractor.

If no deduction is required, the contractor can make the payment to the subcontractor in full.

If a deduction is required, the contractor must:

• calculate the deduction
• make the deduction
• record details of the payment, materials and deduction
• make the net payment to the subcontractor
• complete and give the appropriate statement of deduction to the subcontractor

Returns

Each month, contractors must send HMRC a complete return of all the payments they have made within the scheme or tell us that they have made no payments. The return will include:

• details of the subcontractors
• details of the payments made, and any deductions withheld
• a declaration that the employment status of all subcontractors has been considered
• a declaration that all subcontractors that need to be verified have been verified

PLEASE NOTE – THE CIS CALENDAR IS FROM 6TH TO 5TH AND THE PAYMENT NEEDS TO BE MADE BY 19TH TO AVOID ANY PENALTIES LEVIED BY HMRC.

Subcontractors setting off deductions

Subcontractors that are limited companies should set-off deductions they bear on their receipts against the following sums payable to us:

• PAYE tax due from the company’s employees
• employers’ and employees’ National Insurance contributions due
• Student Loan repayments due from the company’s employees
• CIS deductions made from the company’s subcontractors

The company will need to reduce the amount of PAYE, National Insurance contributions, Student Loan repayments and any CIS deductions that the company is due to pay by the amount of CIS deductions made from the company’s own income. This should be done monthly (or quarterly, as appropriate) and the calculation should be shown on the company’s Employer Payment Summary (EPS).

If HMRC identify or suspect an inaccurate deduction has been claimed by a subcontractor against their employer liabilities, the subcontractor will be asked to amend the claim or provide evidence for the deduction. If the subcontractor does not amend or provide evidence within the set timeframe, HMRC will correct the claim and the subcontractor will be prevented from making further claims in the same tax year.

If, for any month or quarter, the company’s own CIS deductions are greater than the PAYE, National Insurance contributions, Student Loan repayments and CIS liabilities payable, the company should set-off the excess against future payments in the same tax year.

At the end of the tax year, once we’ve received the company’s final Full Payment Submission (FPS) and final EPS, any excess CIS deductions that cannot be set off may be refunded or set against Corporation Tax due. No repayments or set-offs against other liabilities can be made in-year except where the company is in liquidation or administration.

What does ‘CIS gross payment status’ mean?

If you are already registered with CIS, then you can apply for ‘gross payment status’. This means that you receive all of your payments from contractors in full, and nothing will be deducted. Therefore you pay all your National Insurance and income tax at the end of each financial year.

In short it means, that CIS deduction will be done from the subcontractor’s end rather from the contractors’ end so the contractor will be paying in full to the sub-contractor.

Why should I apply for gross payment status?

Yes, you still have to pay tax on your profits to the same amount at the end of each tax year. But, during the year, achieving this status can substantially lessen credit costs and increase direct cash flow.