Construction Industry Scheme

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 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.

Construction Industry Scheme – contractors and 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 more than £1m 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.

Contractors and the Construction Industry Scheme

If you are a contractor, you must register with HM Revenue & Customs. Then, before you pay a subcontractor you need to check their status to find out whether:

• they qualify as an employee (in which case you must pay them through PAYE like other employees)
• they are self-employed and registered as a subcontractor with HMRC (in which case HMRC will tell you what deductions to make from payments)
• they are not registered with HMRC (HMRC will tell you to make deductions at the higher rate).

Subcontractors used to be issued with CIS cards that allowed you to check they were registered with the Construction Industry Scheme. CIS cards are no longer issued. Instead, you verify that a subcontractor is registered by contacting HMRC with the subcontractor’s tax reference.

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 monthly Construction Industry Scheme returns for HMRC.

You should make sure that any payroll service or software you use can handle the requirements of the Construction Industry Scheme.

Subcontractors and the Construction Industry Scheme

If you are a subcontractor, the contractor usually makes deductions when paying an invoice:

• normally, 20 per cent of the value is deducted
• if you haven’t registered with HMRC, 30 per cent is deducted
• if you turn over at least £30,000 and have a record of good tax compliance, you can apply to HMRC to qualify for gross payment, without any deductions.

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.

If you are a subcontractor, registering under the Construction Industry Scheme improves cashflow. Instead of deductions being made at 30 per cent, they are made at 20 per cent or in some cases not at all.

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• HMRC Construction Industry Scheme guidance