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Construction Industry Scheme

What is the Construction Industry Scheme?

The Construction Industry Scheme (CIS) is a tax deduction scheme which involves tax being deducted at source from payments which relate to construction work. 

Registering as a Contractor under the scheme

You must register as a contractor under the Construction Industry scheme (CIS) if you:

  • Pay subcontractors to do construction work
  • If your business spends £1 million a year on construction but does not carry out construction work.

This applies to Sole Traders, Partnerships and Limited Companies.

6 Rules of CIS

  • Register for CIS before taking on subcontractors
  • Check if you should employ them instead of subcontracting the work
  • Confirm subcontractors are registered with HMRC
  • When paying subcontractors, deductions are taken then paid directly to HMRC. These are advance payments on the subcontractors tax and National Insurance
  • File monthly returns (CIS300), keep well maintained records
  • Advise HMRC of any changes to your business

Who is Covered by the Construction Industry Scheme?

Most construction work falls under the scheme. This includes site preparation, refurbishment and decorating.

Although there are exceptions, such as:

  • Carpet fitting
  • Architecture and surveying
  • Scaffolding (labour not included)
  • Work on site that is not construction

Registering for CIS

You can register as a contractor online here, once registered you will receive a letter from HMRC confirming your registration.

Paying Subcontractors

Before subcontractors can be paid, they need to be ‘verified’ with HMRC. This checks that they are registered and determines what rate of deduction is needed.

Subcontractors can be verified on HMRC’s online service.

Deduction Rates

  • 20% for registered subcontractors
  • 30% for unregistered subcontractors
  • 0% if the subcontractor has ‘gross payment’ status.

The deductions are paid direct to HMRC.

The CIS tax month runs from the 6th of one month to the 5th of the next month, a payment and deduction statement should be issued to the subcontractor by the 19th of the month. The 19th is also the date that HMRC should receive the deductions by.

Monthly Returns

HMRC require monthly CIS300 returns showing payments made to subcontractors. If no payments have been made then HMRC should be told that no return is due.

Late Return Penalties

If a filing deadline is missed a penalty is issued, these vary depending how late the return is.

  • 1 Day late £100 fine
  • 2 Months late £200 fine
  • 6 Month or over £300 or 5% of deductions depending which is greater

The penalty will be cancelled if HMRC are told that no payments to subcontractors had been paid during the month.

Penalties can be appealed within 30 days of the notice. This can be done online or in writing to HMRC.

If you have further questions on the Construction Industry Scheme book your free 30 minute initial consultation with AJR & Co Ltd.