What is the Construction Industry Scheme (CIS)?
If you’re new to working within the construction industry, or you’ve been in the building trade for a while and want to move from Pay As You Earn (PAYE) to the Construction Industry Scheme (CIS), the scheme can be difficult to get your head around. That’s why we’ve created our short, no-nonsense guide to the CIS.
What is the CIS?
The Construction Industry Scheme, also known as the CIS, is an initiative enforced by HMRC in 1971 to protect construction workers from false employment and minimise tax evasion in the construction industry.
Under the scheme, contractors deduct money from their subcontractors pay to cover their tax and National Insurance Contributions. Both contractors and subcontractors must be registered for the scheme before any construction work starts. The scheme does not apply to employees.
Some organisations and businesses that are not construction-based may also need to be CIS registered if they annually spend more than £1 million per year on construction work over a three-year period, for example, property developers or housing associations.
Read our guide to your responsibilities as a CIS contractor to find out more.
How much is the CIS tax deduction?
The CIS tax deduction depends on if you are registered for the scheme or not.
If you’re registered for the scheme, you will have a 20% tax deducted from your salary. These deductions count as payments towards your tax and National Insurance bill.
If you’re not registered, the deduction is 30%, so it definitely pays to be CIS registered.
Do I qualify for CIS?
You must register with the CIS as a contractor if:
- You pay subcontractors to do construction work
- Your business doesn’t do construction work, but you usually spend more than £1 million a year on construction
Do I need to be CIS registered?
If you’re a subcontractor, meaning you do construction work for a contractor, then as mentioned above, you should be CIS registered to avoid an extra 10% tax deduction.
There is, however, an alternative to the CIS; if you’re a subcontractor who turns over at least £30,000 and has a good tax compliance record, you can apply for gross payment. Gross payment means you’ll be paid in full by your contractor, but you’ll need to sort your tax bill at the end of the year.
How to register for the Construction Industry Scheme
Working within CIS as a contractor means sweating the details, but it has a lot of advantages. Here’s how to get going:
- Register: if you want to register for CIS as a contractor, you need to do it upfront before taking anyone on. Leave at least two weeks before expecting your subcontractors to start work
- Verify your subcontractors: check they’re on the scheme with HMRC
- Once work starts, deduct 20% from everyone on the scheme (30% for anyone who isn’t)
- Check and double-check: it all needs to be accurate, which means not including anything like VAT or materials in your calculations
- Make your CIS payment to HMRC: you should be set up for payment following registration
- File a monthly CIS return: again, you can do this online, but check your calculations carefully. The scheme was created to help prevent fraud, which is why fines for giving the wrong employment status for any of your subcontractors can be up to £3000
Help from Brian Alfred
As a member of the CIS, you will likely have overpaid in tax over the course of the year. At Brian Alfred, we’re experts in tax rebates for CIS workers, so we work hard to maximise your rebate. Download our tax pack today or contact one of our experts to see how we can help.