The Construction Industry Scheme
What Is the Construction Industry Scheme (CIS)?
The Construction Industry Scheme is a process that HM Revenue & Customs (HMRC) has implemented to collect tax payments from subcontractors working in the construction industry.
This means the contractors must deduct CIS Tax from the sub-contractors and pay HMRC on behalf of the subcontractor. This scheme only applies to those working as subcontractors in the construction industry and not employees.
Sub-contractor vs Contractor in CIS
The first step in CIS is to determine whether you are a ‘contractor’ or a ‘sub-contractor’.
Here’s how to tell which one you are under CIS:
You are a contractor if you hire and pay sub-subcontractors.
You are a sub-contractor if you are working/being paid by a contractor.
Please note you can be both a sub-contractor and a contractor.
Contractors in CIS: What to Know
If you are paying sub-contractors for work in the construction industry, you must register with HMRC as a contractor. A sub-contractor is different from an employee, a sub-contractor is not employed (they are operating as a business or self-employed).
Registering as a contractor
You must follow this link to set up as an employer, on the application select the option which confirms you will have CIS sub-contractors. This will now mean you are required to file CIS returns monthly from the date of registration.
If your business is already set up as an employer, then you do not need to follow the link. Instead, you will need to inform HMRC you are hiring a CIS sub-contractor.
CIS Deductions
Once you have hired a sub-contractor, you should verify with HMRC that they are registered for CIS.
If they are, then you must deduct 20% from their pay.
If they are not, then you must deduct 30% from their pay.
You must then pay this over to HMRC by filing monthly CIS returns.
The period runs monthly from the 6th to the 5th and must be submitted and paid by the 19th of the following month.
Sub-Contractors in CIS: What to Know
If you have a business or are self-employed in the construction industry and work for contractors, then you should register as CIS sub-contractor and self assessment if you have not already.
Registering as a sub-contractor
If you have not registered for self-assessment already, follow this link to do so. When prompted, choose the ‘working as a subcontractor' option.
If you already have a self-assessment account set up, you can register for CIS in your personal tax account.
CIS Deductions
Now you are registered for CIS, when you receive money, it will have 20% deducted from it already.
If you are not registered then 30% will be deducted.
What happens to the CIS deductions?
The CIS deducted from you will have been paid over to HMRC by the contractor. Your contractor should provide you with monthly CIS statements showing the amount that has been paid over to HMRC and the amount paid to you.
Depending on your structure e.g. sole trader or limited company, the tax will be offset or repaid if too much has been collected. Here’s what to know:
Sole trader
The total amount of CIS deducted in the specified tax year will be entered into your tax return and will reduce your tax bill.
If the amount of tax due is less than what has been deducted, then HMRC will refund you the overpayment as a rebate.
Limited Company
If the company operates a payroll for its employees, then CIS will be offset against the tax and national insurance owed each month.
If the company does not operate a payroll, then the CIS can be reclaimed at the end of the tax year.
What is CIS 6?
CIS 6 is what is also called ‘gross status’. What this means is that you will receive the full amount when paid and not have any CIS deducted from your pay.
This is common for companies/individuals who act as a contractor and a sub-contractor.
How to register for CIS 6
You can register when you are registering for the CIS or if you are already registered then you can still register by following the information on this link.
You must qualify for gross status and that means the following.
Show that:
you’ve paid your tax and National Insurance on time in the past
your business does construction work (or provides labour for it) in the UK
your business is run through a bank account
Turnover for the last 12 months:
£30,000 if you’re 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
HMRC will review this on an annual basis to decide if you can keep the gross status.
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