Here at DSR Tax Claims, we want to make your life as easy as possible. So instead of fruitlessly searching the internet trying to find out what the CIS is and how it might benefit you, check out our handy guide to CIS. Hopefully our short guide will answer all your questions – but if you get to the bottom and still have more questions, give our professional and friendly team a call on 0115 795 0232 – we are always happy to help.
So, what is the CIS?
The CIS stands for Construction Industry Scheme, an HMRC scheme introduced in 1971 to protect construction workers from unscrupulous practice such as false employment, as well as to minimise tax evasion within the construction industry. It covers both contractors and subcontractors, and requires contractors to deduct money from subcontractors and pass it to HMRC to cover their tax payments in advance, as well as their National Insurance (NI) obligations.
Contractors need to register for the scheme before any construction work begins. Subcontractors don’t have to register, but deductions are taken from their payments at a higher rate if they’re not registered. If a subcontractor intends to register for the scheme, like contractors this should be before any construction work begins.
What does it mean for me?
If you are registered as a CIS worker, you will have 20% deducted from your salary. This money is passed on to the HMRC as an advance payment towards your tax bill and National Insurance payments. It’s really important to register under the CIS scheme – because if you don’t, those deductions go up to a whopping 30%.
Who is classed as a contractor and who is classed as a subcontractor?
HMRC guidelines state that you must register as a contractor if either:
- you pay subcontractors for construction work
- your business doesn’t do construction work but you spend an average of more than £1 million a year on construction in any 3-year period
You must register as a subcontractor if you do construction work for a contractor.
And if both of those apply to you, you must register as both a contractor and a subcontractor.
Which kind of workers does this apply to?
CIS applies to construction workers who do work upon a permanent or temporary building or structure or civil engineering work like roads and bridges. This means that if your job involves such tasks as preparing the site, e.g. laying foundations and providing access work; demolition and dismantling; building work; alterations, repairs and decorating; installing systems for heating, lighting, power, water and ventilation, or cleaning the inside of buildings after construction work then this means you!
However, if your job isn’t directly involved with construction – such as architecture, or scaffold-hire, or manufacturing construction materials – then the CIS doesn’t apply to you.
How do I register for the CIS?
To register as either a contractor or a subcontractor, you need to contact HMRC – details of the information you will need to provide are shown on the HMRC website. Don’t forget – if you don’t register as a subcontractor, you will have an extra 10% deducted from your salary, so it definitely pays to register.
Are there any alternatives to the CIS?
Yes, it’s called gross payment status. If you are a subcontractor with a turnover of at least £30,000 (ignoring VAT and cost of materials) and you have a good past record of tax compliance that passes HMRC tests, you can apply to the HMRC for gross payment status. You’ll need to show that you’ve paid your tax and National Insurance on time in the past, that your business does construction work (or provides labour for it) in the UK and that your business is run through a bank account. With gross payment status, your contractor will pay you in full without any deductions and you will need to sort out your own tax bill at the end of each tax year.
We hope this has answered all of your questions about the CIS scheme.