If you work in construction, whether as a contractor or a subcontractor, you may have heard of the Construction Industry Scheme (CIS). But what exactly is it, and how does it affect you?
The Construction Industry Scheme (CIS) is a scheme that HMRC uses to collect Income Tax from subcontractors who work in the construction industry. This system ensures that the correct amount of tax is paid on construction work.
If you are a contractor, you must register for the CIS. If you are a subcontractor, CIS registration is optional, but doing so means less tax will be deducted from your payments.
In this article, we will explain how the scheme operates, who it applies to, CIS register, and how to avoid common mistakes. Whether you are just starting or want to ensure you are complying correctly, this article will help you understand the CIS clearly.
The Construction Industry Scheme (CIS) is a set of tax regulations introduced by HMRC to govern how payments are made between contractors and subcontractors within the UK construction industry.
Under CIS, contractors must deduct an amount from a subcontractor’s payment and pass it directly to HMRC. These deductions serve as advance payments towards the subcontractor’s income tax and National Insurance contributions.
CIS explained:
CIS applies to most types of construction work in the UK, including building, repairs, demolition, and decorating. It affects both sole traders and limited companies operating in the construction industry.
Registration under the Construction Industry Scheme (CIS) depends on whether you are a contractor or a subcontractor, or sometimes both. Here’s what you need to know:
You must register for CIS if:
You don’t have to register, but it’s highly recommended. Why?
If your business both pays subcontractors and receives payments from contractors, you will need to register as both a contractor and a subcontractor under the CIS.
The Construction Industry Scheme (CIS) operates by requiring contractors to deduct tax from payments made to subcontractors and remit that tax to HMRC. This ensures that tax is paid in advance on construction work and helps to prevent tax evasion.
Here’s a step-by-step breakdown of how it works:
Before engaging subcontractors, contractors must register for CIS with HMRC. They also need to verify each subcontractor’s CIS status using HMRC’s online system.
Subcontractors may choose to register for the CIS. If registered, only 20% tax will be deducted from their payments. If they do not register, contractors are required to deduct 30%.
The contractor agrees to pay the subcontractor for construction work, such as building, demolition, repairs, or decorating.
Before making the payment, the contractor:
The deducted amount is sent to HMRC on behalf of the subcontractor. This counts as advance tax paid.
Contractors must file a CIS return with HMRC each month, showing:
CIS deduction rates:
Under the Construction Industry Scheme (CIS), contractors must deduct tax from subcontractors’ payments and send it to HMRC. The deduction rate depends on the subcontractor’s registration status with HMRC.
Here are the three possible CIS deduction rates:
Subcontractor Status |
Deduction Rate |
Registered |
20% |
Not Registered |
30% |
Gross Payment Status |
0% |
Contractors must report monthly to HMRC.
CIS applies to most construction activities:
Check the construction information service or the HMRC guide to be sure.
If you are involved in the Construction Industry Scheme (CIS), your obligations will depend on whether you are a contractor, a subcontractor, or both. Failure to fulfil these responsibilities can result in penalties from HMRC, so it is important to remain compliant.
Contractors:
If you pay subcontractors for construction work, you are a contractor under CIS. Your main responsibilities include:
Subcontractors:
If you are paid to carry out construction work for a contractor, you are a subcontractor under CIS. Your key responsibilities are:
CIS registration is an essential step if you work in the UK construction industry, whether as a contractor or a subcontractor. The process varies depending on your role, but both can be completed online via HMRC.
Contractors:
Steps to register as a contractor:
Once registered, you’ll be able to:
Subcontractors:
Steps to register as a subcontractor:
Details needed:
Whether you are a contractor or a subcontractor, understanding how the scheme operates, who must register, and what your responsibilities entail can help you remain compliant and avoid penalties.
Although the process may initially appear complicated, registering for CIS and fulfilling your obligations ensures smoother payments, accurate tax deductions, and fewer problems with HMRC.
If you’re a contractor or subcontractor working in the UK construction industry, registering for the Construction Industry Scheme (CIS) is essential, but the process can be confusing if you’re new to it. That’s where PHS Associates can help.
Our expert team provides step-by-step support to ensure you register correctly with HMRC, apply the correct CIS deduction rates, and remain compliant with your ongoing obligations. We also assist with monthly CIS returns and accurate record-keeping, helping you avoid penalties and stay focused on your business. Contact us at 0208 8611685 and email info@phs-uk.co.uk. Get in touch today to register with confidence and focus on building your business.