The Construction Industry Scheme, more commonly known as CIS is designed to help with business tax and national insurance for subcontractors. Under the CIS contractors will deduct money from any payments they make to subcontractor’s and pass those payments on to HM Revenue and Customs.
It might sound complex, but it actually makes it easier for both contractors and subcontractors to ensure they are paying the right taxes. If you’re a contractor then you have to register with HMRC as a self employed subcontractor in the construction industry.
It’s highly recommended that you register as soon as you can even if you work mainly under PAYE and do the odd job subcontracting. If you don’t then any tax deductions for any work you do will be at a higher rate of 30% instead of the normal 20%.
Contractors and Subcontractors
They sound similar but are very different, a contractor is, in essence, a business that pays others for construction work. This could be a construction business, building firm, government department or even a local authority.
If you own a business, even one that doesn’t specialise in construction, that has spent over 1 million pounds on construction, within three years then you will also need to register as a contractor. Private householders or individuals are not covered by the CIS scheme.
Subcontractors can take many forms, they can freelance individuals, building firms or businesses. As long as they carry out construction work for a contractor, they are counted as a subcontractor. And yes a business or firm can be both a contractor and subcontractor.
Remember construction work can include a wide range of different areas, this includes demolition work, repair work, decorating, installation work, civil engineering and much more. If you only do specific jobs like carpet fitting or surveying then you may not have to register, if you’re unsure contact HMRC.
Registering for the CIS scheme can be done online and before any payments are made, a contractor should verify that their subcontractor is registered. If the subcontractor is registered, then HMRC will inform you if you should deduct tax and if so how much, the standard rate is usually 20%.
You’ll need to keep a record of any deductions/ payments made and then make a return payment to HMRC at the end of each month. Subcontractors who aren’t registered can be charged a higher rate of tax, so it is your best interests to register.
Outside The UK
The rules set out by the CIS still stand for contractors based outside the UK, doing construction work or employing subcontractors to do work for them in the UK. Under the CIS scheme, there’s usually no difference between non-resident contractors/ subcontractors and ones based in the UK.
Remember though if you are based outside of the UK and plan to do construction work as a contractor/ subcontractor then make sure you register before starting work. If you don’t then you will be charged at the higher rate of tax.
