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Construction Industry Scheme (CIS)

 

The Construction Industry Scheme (CIS) will be applicable to you if you are involved in any of the following construction works:

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CIS covers most construction work to:

• a permanent or temporary building or structure

• civil engineering work like roads and bridges

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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

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You do not have to register if your work entails the following

• 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

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Even if your business is not located in the UK but is involved in construction work as a contractor or subcontractor in the UK you will be subject to the same CIS rules.

 

How does Construction Industry Scheme (CIS) work

 

If you are classed as a contractor then it is your responsibility to deduct money from a subcontractor’s payment and pass it to HM Revenue and Customs (HMRC).

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HMRC will class these deductions as advanced payments towards the subcontractor’s tax and National Insurance.

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What constitutes being classed as a Contractor

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• 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

 

If either of the above apply to your business then you are required to register as a Contractor.

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What constitutes being classed as a Subcontractor

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• if you do construction work for a contractor

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If the above relates to your business then you are encouraged to register for the scheme but it is not compulsory. If you do not register then the contractor is entitled to deduct a higher rate from payments to non-registered subcontractors.

 

If your business falls under Contractor and Subcontractor you are required to register as both a Contractor and Subcontractor.

 

Contractors

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Can be classed as a Mainstream or Deemed contractors

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Mainstream contractors

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If your business is construction and you pay subcontractors for construction work, you’re a ‘mainstream’ contractor. This applies if you’re a:

• builder

• labour agency

• gangmaster (or gang leader)

• property developer

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Deemed contractors

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You count as a ‘deemed’ contractor if 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. This could apply to:

• housing association or arm’s length management organisations (ALMOs)

• local authorities

• government departments

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You must monitor your construction spend if you are likely to become a deemed contractor.

 

There are exceptions for contractors where CIS does not apply

If your work is:

• paid for by a charity or trust

• paid for by a governing body or head teacher of a maintained school on behalf of the local education authority

• on the subcontractor’s own property and worth less than £1,000 excluding materials - you must call the CIS helpline to get an exemption

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CIS also does not apply if you’re a deemed contractor paying for:

• work on property (that is not for sale or rent) for your own business use

• a construction contract worth less than £1,000 excluding materials - you must call the CIS helpline to get an exemption

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Construction work not covered by CIS

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There are also certain jobs that are exempt from the scheme, including:

• architecture and surveying

• scaffolding hire (with no labour)

• carpet fitting

• delivering materials

• work on construction sites that is clearly not construction, for example running a canteen or site facilities

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Having decided that your business should be deemed as a contractor then you will need to do the following:

Register as a Contractor

Verify subcontractors

Make deductions and pay subcontractors

Pay deductions to HMRC

File your monthly returns

Keep records of payments and deductions

Keep HMRC up to date of any changes

 

Subcontractors

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You should register for the Construction Industry Scheme (CIS) if you work for a contractor and you’re one of the following:

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• self-employed

• the owner of a limited company

• a partner in a partnership or trust

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Under CIS, a contractor must deduct 20% from your payments and pass it to HM Revenue and Customs (HMRC).

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These deductions count as advance payments towards your tax and National Insurance bill.

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If you do not register for the scheme, contractors must deduct 30% from your payments instead.

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If you do not want deductions made

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If you do not want deductions to be made in advance by contractors, you can apply for ‘gross payment status’. You can do this when you register for CIS.

You do not need to register for CIS if you’re an employee. Check your employment status if you’re not sure.

 

 

Having decided that you should be deemed as a subcontractor then you will need to do the following:

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Register as a subcontractor

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Apply for gross payment status if you qualify

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To qualify

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You must show HM Revenue and Customs (HMRC) that your business passes some tests. You’ll need to show that:

• you’ve paid your tax and National Insurance on time in the past

• your business does construction work (or provides labour for it) in the UK

• your business is run through a bank account

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HMRC will look at your turnover for the last 12 months. Ignoring VAT and the cost of materials, your turnover must be at least:

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• £30,000 if you’re a sole trader

• £30,000 for each partner in a partnership, or at least £100,000 for the whole partnership

• £30,000 for each director of a company, or at least £100,000 for the whole company

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If your company’s controlled by 5 people or fewer, you must have an annual turnover of £30,000 for each of them.

 

Getting paid from a contractor

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To be paid correctly by a contractor, make sure you give them the same legal business name or trading name you gave when you registered for the Construction Industry Scheme (CIS). You should also give them your Unique Taxpayer Reference (UTR) so they can verify you.

If you do not, this could affect how much you get paid

Contractors will not make a deduction from amounts you charge on your invoice for:

• VAT

• materials that you have paid for directly

• equipment which is now unusable (‘consumable stores’)

• plant hired for the job

• manufacturing or prefabricating materials

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Annual review

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If you have gross payment status, HM Revenue and Customs (HMRC) will review your business every year, to decide if you can keep your status.

You must be on time with your tax returns and payments to keep your gross payment status.

 

Keep HMRC up to date of any changes

 

For a more details on Construction Industry Scheme and construction operations refer to the following items

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https://www.gov.uk/government/publications/construction-industry-scheme-cis-340/construction-industry-scheme-a-guide-for-contractors-and-subcontractors-cis-340#appc

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Guidance

Construction Industry Scheme: a guide for contractors and subcontractors (CIS 340)

Updated 6 April 2021

 

https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr14330

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CISR14330 - The Scheme: construction operations: index of construction operations