Construction Industry Scheme

It can be challenging to understand the Construction Sector Scheme (CIS) whether you’re new to the construction industry or if you’ve been in the building trade for some time and want to switch from Pay As You Earn (PAYE) to it. This is the reason we wrote this straightforward guide to the CIS.

What is the CIS?

HMRC implemented the Construction Industry Scheme, popularly known as the CIS, in 1971 to safeguard construction employees against fraudulent employment and reduce tax evasion in the sector.

To pay for their tax and National Insurance Contributions, contractors under the program deduct money from the payments of their subcontractors. Before any building work begins, contractors and subcontractors must register with the program. Employees are not covered by the program.

If they spend more than £1 million on building work over a three-year period, certain organizations and firms that are not related to the construction industry, like real estate developers or housing associations, may also need to be CIS registered.

How much is the CIS tax deduction amount?

Whether you have registered for the program or not will affect your ability to deduct CIS taxes. If you are signed up for the program, 20% of your income will be withheld as tax. These deductions are considered contributions to your tax and National Insurance obligation.

It absolutely pays to be CIS registered because the deduction is 30% if you're not.

Are you eligible for CIS?

You must register as a contractor with the CIS if:

To complete construction work, you pay subcontractors.

Even though your company doesn’t perform construction work, you typically spend more than £1 million annually on it.

Do you have to register with the CIS?

In order to avoid an additional 10% tax reduction if you are a subcontractor, you should be CIS registered.

A subcontractor who earns at least £30,000 and has a solid track record of tax compliance can apply for gross payment as an alternative to the CIS. Gross payment indicates that your contractor will pay you in full, but you’ll still need to figure out your tax obligation at the end of the year.

How to register for Construction Industry Scheme?

Although working as a contractor within CIS requires meticulous attention to detail, there are several benefits. Here is how to start:

 Register: You must complete the registration process for CIS before hiring any subcontractors if you desire to do so. Before anticipating your subcontractors to begin working, give them at least two weeks.

 Check the status of your subcontractors’ enrolment in the program with HMRC.

 Once work begins, subtract 20% from each participant in the plan and 30% from non-participants.

 Check and double-check everything; it must all be precise, therefore don’t include anything like materials or VAT in your calculations.

 Make your CIS payment to HMRC; after registering, you should be prepared for payment.

 You can once more submit your monthly CIS return online, but be sure to double-check your math.

The plan was developed to prevent fraud, thus there are fines of up to £3,000 for misrepresenting the employment status of any of your subcontractors.

If you need more information regarding CIS, you can reach out to our team at Cheylesmore Accountants, we’re experts in tax rebates for CIS workers, so we work hard to maximize your rebate.