The Construction Industry Scheme is also known as ‘CIS’. It is a scheme was set up by HMRC to ensure self employed sub contractors pay tax correctly and on time.
Under the rules of the scheme businesses (referred to as CIS contractors) who employ self employed contractors to work on their construction projects, must deduct a fixed amount of tax from all payments they make to them.
CIS is not optional and if a contractor falls into the rules of the scheme they are legally obliged to register and make deductions.
Which Contractors Must Use the Construction Industry Scheme (‘CIS’)
Most Contractors carrying out construction work in the UK must register for the Construction Industry Scheme.
Construction Work includes:
- preparing the site, eg 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
- a permanent or temporary building or structure
- civil engineering work like roads and bridges
Certain types of work is exempt from CIS, even though it is related to construction. Typical examples include architects, consultants and carpet fitters. Find out more about
How to Register as a Contractor in the Construction Industry Scheme
Registering as a CIS Contractor is a two step process:
- Register as an HMRC Employer
- Register to use the Construction Industry Scheme (CIS) online service
1. How to Register as an HMRC Employer Online
You can register as an employer on the HMRC website. Once successfully registered as an Employer you will receive two important reference numbers:
- An Employers Reference Number
- A 13-digit Accounts Office reference number
Keep these safe because you’ll need this to set up and administer your subcontractor CIS payments.
If you are already registered than an Employer then do not register again otherwise you will have two payroll schemes in place. This will only cause confusion with HMRC and additional administration.
2. How to Register as a CIS Contractor
You can register as a CIS Contractor on the HMRC website. Before you get started you need to have ready:
- Your government gateway login
- An Employers Reference Number
- A 13-digit Accounts Office reference number
If you have any problems registering as a Contractor you can call the HMRC CIS Helpline on 0300 200 3210.
Useful Links – Register for CIS Online, Sign in the PAYE Online
Your Responsibilities as a CIS Contractor
As a CIS Contractor you must deduct a fixed amount of tax and national insurance from every payment you make to your subcontractors.
These deductions must be paid over to HMRC.
How Much Should You Deduct
Before you pay a subcontractor you should verify their status with HMRC. Once verified HMRC will tell you which of the following three deductions you should make:
- 20% for a registered CIS subcontractor
- 30% for a non-registered CIS subcontractor
- 0% is the subcontractor has gross payment status
How to Verify a Sub Contractor
You can verify the status of a subcontractor using:
- HMRC CIS online service (which you used to register as a CIS Contractor)
- Commercial CIS software
If you need to verify more than 50 subcontractors you’ll have to sign up to a Commercial CIS software, which may involve a fee.
Depending on their status, your subcontractor must give you certain information:
- Self-employed individuals – their UTR and National Insurance numbers;
- Limited Companies – their Company Name, registration number and UTR number;
- Partnerships – their trading name and partnership UTR.
An Example of Making a CIS Deduction
Sam the Sub Contractor submits an invoice for £1,000 dated 31 May 2018. You verify the contractor with HMRC and confirm that Sam is a registered sub contractor.
Sam will be paid £800, with £200 (20%) being deducted for Tax and National Insurance.
The invoice amount to based the percentage deduction on should be based on total invoice value EXCLUDING:
- VAT
- Materials
- Equipment
Once you have made a CIS Deduction you must give the subcontractor a payment and deduction statement within 14 days of the end of each tax month. You can do this by:
- Manually filling out an HMRC payment and deduction statement;
- Using a Commercial CIS Software which automatically emails a statement to sub contractors.
Useful Downloads – HMRC payment and deduction statement
Paying CIS Deductions to HMRC
CIS contractors must pay over deductions made for the previous tax month by 22nd of the following month.
So any deductions made in the tax month 6 May to 5 June would need to be paid by 22 June.
If you need to pay PAYE and CIS deductions to HMRC then you should make one single payment for both.
Monthly CIS Returns
You need to tell HMRC how much you have deducted from your subcontractors by the 19th of each month. You can file these returns:
- Manually on the HMRC website
- Using a commercial CIS software
A monthly CIS Return is a summary of the subcontractors you have paid and the amounts you have deducted on their behalf. For this reason, it may be easier to use a commercial CIS and accounting software to manage your returns as well as your bookkeeping.
CIS Record-Keeping for Contractors
In addition to submitting monthly statements, a contractor is legally required to keep detailed records of:
- the gross amount of each payment invoiced by subcontractors, excluding VAT
- any deductions you’ve made from subcontractor payments
Keep these details for at least 3 years after the end of the tax year they relate to. HM Revenue and Customs (HMRC) could ask to see your CIS records at any time.
Depending on the size of your business using a commercial CIS and bookkeeping software to automate your CIS record-keeping and reporting could save you a lot of time, as well as minimising the risk of errors.
[mailerlite_form form_id=6]