Construction Industry Scheme (CIS)
A contractor must register with HMRC for the Construction Industry Scheme (CIS) if they pay money to subcontractors for their construction services. Through the scheme, the contractor pays over a 20% of the labour charged by the subcontractor to HMRC, who retain this and use it against the subcontractor’s tax liabilities. This tax is reported to and paid to HMRC in a similar way to PAYE tax.
Subcontractors do not need to register for the scheme with HMRC, but if they are not registered they will have a higher percentage deducted by the contractors at 30%. Subcontractors can also apply for gross payment status with HMRC so they would not need to report on their CIS tax deductions at the end of the tax year.The work covered by CIS is largely related to the construction of a building (permanent or temporary), roads and bridges; this includes setting out the formations, demolition, dismantling and building work, alterations, repairs and decorating (excluding carpet fitting), installing heating, lighting, water and power systems, and cleaning the inside once the work is completed. When a subcontractor sends the invoice for the work done, the CIS tax rate is deducted from that gross amount by the contractor who must legally provide a voucher to show the breakdown of the CIS tax paid, the amount paid to the subcontractor and the overall amount.
There are exclusions around this which would not require a registration if only certain services are of the following:
• Architecture and Survey work
• Hire of Scaffold without labour
• Making and delivering materials used in the construction
If a person works on a construction site carrying out non-construction tasks they do not have to register for the CIS scheme – the scheme applies to construction work itself, so site facilities such as staff for a canteen or administrators would not be subject to the CIS deduction.The subcontractor can reclaim the CIS paid by one of two ways, depending on their work status:
1) A self-employed person, or a partner of a partnership, will be able to enter this information on their self-assessment tax returns. There is a box where the amount of CIS deducted in the tax year can be entered. When the tax calculation is run, the CIS tax deducted will be offset against the tax liability which will decrease the amount of tax that is to be physically paid to HMRC. If the CIS deductions are greater than the tax liability, the difference will be repaid to the individual.
2) A limited company treats CIS through the payroll. When preparing the payroll for each month, the CIS deducted in that month is to be entered on the information before being sent to HMRC. The CIS tax is then offset against any PAYE taxes due for that period and any leftover CIS is carried forward to the next period to be used against future PAYE tax. At the end of the tax year, if there is still CIS tax against the PAYE account, this remainder can be reclaimed from HMRC in May. Tags:
CIS, Construction industry scheme, National insurance, personal tax returns, self-assessment tax return