The Construction Industry Scheme (CIS) affects businesses involved in construction — either as contractors or subcontractors. It also affects businesses that aren’t themselves part of the industry, but which spend large amounts on construction work.
The Construction Industry Scheme sets special rules for how tax and National Insurance contributions are dealt with when paying subcontractors.
The Construction Industry Scheme applies to businesses involved in the construction industry. That includes builders, property developers, tradesmen, agencies supplying workers and so on. It can also apply to any business that spends an average of £1 million or more per year over three years on construction work.
If you use subcontractors or spend large amounts on construction work, you count as a contractor under the Construction Industry Scheme.
The Construction Industry Scheme treats you as a subcontractor if you work for a contractor, for example, as a self-employed tradesman or a smaller construction company with your own employees. The Construction Industry Scheme doesn’t apply to employees who are directly employed by the contractor.
You can be both a contractor and a subcontractor under the Construction Industry Scheme, for example, if your company works for a larger contractor and also subcontracts work out to self-employed tradesmen. Larger contractors can register as a 'multiple contractor'. This allows the business to divide itself into smaller 'divisions' for the purposes of CIS. Each division then operates as though it is a contractor in its own right.
If you are a contractor, you must register with HM Revenue & Customs. Then, before you pay a subcontractor you need to check their employment status to find out whether:
Subcontractors used to be issued with CIS cards that allowed you to check they were registered with the Construction Industry Scheme. You must now verify that a subcontractor is registered by contacting the HMRC Construction Industry Helpline on 0845 366 7899 with the subcontractor’s tax reference or by using the HMRC Online services.
If you need to make deductions, you give the subcontractor a written statement showing the details. You pay over the deductions to HMRC either monthly or quarterly, depending on the amounts involved. You also complete Construction Industry Scheme returns for HMRC whenever you pay subcontractors.
You should make sure that any payroll service or software you use can handle the requirements of the Construction Industry Scheme.
If you are a subcontractor, you must register with HMRC by calling the CIS helpline before you start work. Registering under the Construction Industry Scheme improves your cashflow as contractors have to make deductions when paying your invoices. Instead of deductions being made at 30%, they are made at 20% or in some cases not at all.
Deductions are not made in relation to VAT charged on an invoice or your costs such as materials and equipment hire.
Any deductions made count towards the tax and National Insurance contributions you have to pay — either through tax self-assessment (if you are self-employed) or the PAYE system (if you are a limited company). If the deductions are more than the total due to HMRC, you can claim a refund at the end of the year.