About Construction Industry Scheme- CIS
So….you are in the construction industry? Just what is the CIS?
Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments. This is then passed on to HM Revenue and Customs.
The deductions count as advance payments towards the subcontractor’s tax and National Insurance.
Contractors must register for the scheme. Subcontractors don’t have to register. However deductions are taken from their payments at a higher rate if they’re not registered.
Who counts as a contractor or subcontractor?
Register as a Contractor if either:
- you pay subcontractors for construction work
- your business doesn’t do construction work unless you spend an average of more than £1 million a year on construction. This covers a 3 year period.
Register as a Subcontractor if you do work for a contractor.
You must register as both if you fall under both categories.
Contractors have to make an online monthly return to HMRC:
The monthly return relates to each tax month. The deadline for submission is 14 days after the end of the tax month.
All contractors are obliged to file monthly even if they are entitled to pay their PAYE quarterly.
The contractor has to contact HMRC to check whether to pay a subcontractor gross or net. Not every subcontractor will need verifying . Usually it will only be new ones.
Verification will determine what rate of pay options should be applied. These can be a 20% deduction, which is the standard, 30% for unregistered or gross payments for some.
All verification of subcontractors will,starting 6 April 2017, be required to be completed online.
What About the HRMC?
As a contractor, you need not register subcontractors, if you have recorded them in a monthly return of the current or previous two tax years.
Payslips are required to be provided monthly to subcontractors. These slips must show all payments, the rate of reduction and any expenses. Naturally tax deductions must also be included.
What is Taxed?
All expenses, with the exception of travel expenses are to be deducted from the payment issued to subcontractors.
If a subcontractor first starts working in the construction industry on a self-employed basis they will need to register for the CIS.
Who Can Receive Gross Payments?
The rules for subcontractors to be paid gross include a business test, a turnover test and a compliance test. Past timely tax returns, work in the construction industry and the operation of the company through a bank account.
Turnover amounts vary based on the type of business.
- £30,000 for a sole trader
- £30,000 for each partner in a partnership, or at least £100,000 for the whole partnership
- £30,000 for each director of a company, or at least £100,000 for the whole company
Covers most work to:
- a permanent or temporary building or structure
- civil engineering work like roads and bridges
The work includes:
- preparing the site, eg laying foundations and providing access works
- demolition and dismantling
- building work
- alterations, repairs and decorating
- installing systems for heating, lighting, power, water and ventilation
- cleaning the inside of buildings after work is finished
You don’t have to register if you only do certain jobs, including:
- architecture and surveying
- scaffolding hire (with no labour)
- carpet fitting
- making materials used including plant and machinery
- delivering materials
- work on sites that’s clearly not construction, eg running a canteen or site facilities
Your business is based outside the UK
The same rules apply if your business is based outside the UK,