If you are a Contractor in the construction industry who subcontracts work to other businesses you must register for CIS.  This applies whether you operate as a company, partnership or a sole trader.

If you are a Sub-contractor who works on larger projects for a main contractor you have the option to register for CIS and there are benefits to doing this.

If you are a contractor and a subcontractor you must register for both schemes.

Watch our video to find out more information.

There are exceptions for businesses that only do certain jobs for example architecture or surveying, carpet fitting and delivery.  The full list is on the HMRC website.

If your businesses is not in the construction industry but carries out £1 million of construction work in any 3 year period you will also be required to register.

How does the Construction Industry Scheme Operate?

Under CIS, contractors deduct money from their payments to subcontractors and pay it over to HMRC.  In simple terms the deduction applies to the labour element of invoices not materials or VAT.  Specific details of the calculation are given on the HMRC website.  The deduction counts as an advance payment towards the subcontractor’s tax and National Insurance.

If the subcontractor is registered for CIS the deduction is 20%.

If the subcontractor is not registered for CIS the deduction increases to 30%.

If you are a registered sub-contractor you can apply for gross payment status which means no deduction is taken.  You must meet these conditions to qualify.

  • The business is carried on in the UK and has a bank account
  • The business has paid its tax and National insurance on time in the past.
  • The business must meet minimum turnover limits specified on the HMRC website.

 

How do I register as a contractor?

This should be done before you start to pay anyone as an employee or a subcontractor.  To register as a contractor you need to first register as an employer with HMRC.  This can be done online and HMRC will then issue you with a PAYE Employer Reference and an Accounts Office Reference.  Using these references you can register online for the CIS scheme.

How do I register as a sub-contractor?

Subcontractors register online on the HMRC website by providing business information including the Unique Taxpayer Reference number.

What are my obligations as a contractor under CIS?

A contractor must file monthly online returns with HMRC.   These show which subcontractors have been employed in the month and the deduction taken from their invoices.

Within 14 days of the end of each month you must do three things

  • 1 – Provide a statement to each subcontractor, showing the payments made and the amounts deducted
  • 2 – File an online return with HMRC showing all the subcontractor payments made in the month.
  • 3 – Pay over the deductions made to HMRC, you get 3 extra days to pay if the payment is made electronically.

When can a subcontractor reclaim the tax deducted?   

Sole Traders and Partners submit details of the tax that has been deducted during the tax year when they submit their Annual Self Assessment Tax Return.  HMRC will then adjust the amount of tax to be paid to take account of the CIS deductions.

Limited Company subcontractors submit their CIS deduction information to HMRC monthly together with their payroll tax information.  The CIS deductions are used to reduce the monthly payroll tax amount which is then paid as usual.

If you have any questions please get in touch with us at Jon Davies Accountants.  We’d love to help