The Construction Industry Scheme (CIS)
The Construction Industry Scheme (CIS) is a system that allows HMRC to collect tax in advance and applies to all in the industry regardless of the type of business, so will apply to sole traders, partnerships and Ltd companies. It does not apply to a company’s employees. All taxes collected through the CIS scheme are then offset against an entity’s tax liabilities.
CIS covers most building work, including decorating, site preparation, alternations & repairs. There are some exceptions though, such as carpet fitting (check the HMRC manual for full guidance and a list of exceptions). It only applies to the labour element of the work completed, not materials.
Private households that have work completed by a contractor fall outside the scope of CIS. However, if the contractor then engages with a subcontractor to complete any of the work, this part of the work then falls under the scope of the CIS scheme, e.g. a building company get a decorator to complete some work, and this element falls under the CIS scheme.
If you are using sub-contractors (self-employed individuals or companies) to complete work that comes under CIS scope, you need to register with HMRC as a contractor first.
Once registered, you will need to verify any subcontractor you will use. When you go through the verification process, it will then tell you if you need to deduct 20%, 30% or no tax from the subcontractor when making payment.
Every tax month, you will need to file a return, reporting any deductions during the tax month for your subcontractors. These need reporting by the 19TH of the following month. You must also then provide the subcontractor with a deduction statement. Even if you don’t engage with any subcontractors during the tax month, you still need to file a nil return. Any late returns or returns not filed are subject to a £100 fine.
Any CIS deducted then needs to be paid over to HMRC by the 22nd of the following month.
Note: a tax month runs from the 6TH of one month to the 5th of next month.
You must register with HMRC as a subcontractor before taking on any work covered under the CIS scheme. If you don’t do this, deductions should be made at 30%.
When you are registered for CIS and submit your invoice, you need to note your UTR number on the invoice and the national insurance number for the sole trader or registered company number for a Limited company. This information will allow the contractor to verify you.
You will need to keep all records and should receive a deductions statement every month. You will need these to submit any tax returns and also keep any receipts for expenditures for materials.
If you are a sole trader, at the end of the tax year, you will need to submit a self-assessment tax return which will then establish if you still owe tax or you have overpaid and are due a rebate.
For Ltd companies, you need to keep full records but can opt to have CIS tax deducted offset against your PAYE bills for employees during the month. This would be done by submitting an EPS through your payroll.
Construction Industry Scheme Next Steps
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