Quick Guide to the Construction Industry Scheme CIS

Tax Model

The Construction Industry Scheme (CIS) is a tax system, and applies to those involved in conventional construction work. It is specifically applied to contractors and subcontractors. It can also apply to businesses that regularly spend large amounts on construction even though their main business may not actually be in construction.

CIS is a bespoke set of HMRC rules that govern what tax is owed when contractors pay subcontractors for construction work.

Registered

Any company that does business in the construction industry, as a contractor paying subcontractors, should be registered for the CIS scheme.

Any subcontractor, working in construction and paid by a contractor, should be registered as CIS for tax purposes.

Contractors

What is a ‘contractor'? If, like many in the construction industry, your company contracts construction work out to subcontractors then you are a ‘contractor'. A company or business that is a ‘contractor' needs to register with HMRC as a ‘contractor'.

A contractor should do two things:

1. Register with HMRC, by phone or online.
2. Verify your subcontractors, to find out how to pay them.

Subcontractors

What is a ‘subcontractor'? A ‘subcontractor' is a person, normally self-employed, who works in the following way:

• Is in the construction industry
• Has a contract with a contractor
• Is paid by the contractor for the work done

If you tick these boxes it is highly probable that your work, and tax, will be covered by CIS.

Self Employed

Subcontractors should register with HMRC as self employed and operating under the Construction Industry Scheme. The information you need to give HMRC will depend whether you are a sole trader, partnership or company. HMRC will then give you a Unique Taxpayer Reference (UTR).

Subcontractors will need to tell the contractor that they are CIS registered. This enables the contractor to verify you with HMRC and know what tax to take off your gross pay; this will be one of three amounts:

1. 0%, Gross receipt
2. 20% Standard Deduction
3. 30% Higher Rate Deduction

Deductions

The deductions made during the tax year are effectively payments of tax on account and in line with all self employed workers CIS subcontractors must complete a Self Assessment at the end of each tax year.

Many sub contractors have their own accountants to help with this but umbrella companies can also offer advice on completing the self-assessment.

In most standard rated cases the completion of the self-assessment will lead to a tax rebate so it is important to complete the return soon after the fiscal year end.

Jim Goddard, Divisional Manager of Oriel Contractors, says:

"We deal with hundreds of subcontractors every day. Our job is to do all the administration and paperwork for them - we take all the hassle and burden away from subcontractors so they can get on with their job knowing all the red tape is being dealt with.

All the subcontractor needs to do is give our friendly and expert team a call and we'll do the rest."

Up & Down

Umbrella Companies are great for the subcontractor who hates paperwork and don't like endless administration. If you're a subcontractor it's probably worth spending a few minutes looking into this option.

The downside is you'll have a wasted call; the upside is you can get on with your job without having to worry about HMRC, paperwork or tax.