What is the Construction Industry Scheme CIS?
HMRC introduced the Construction Industry Scheme (CIS) back in 1971. Its aim was to try to minimise the amount of tax evasion within the construction industry and also to protect construction workers from being employed illegally and hence taken advantage of.
The basic principle of CIS is that Contractors take money from what they pay subcontractors in wages in order to cover their tax and National Insurance contributions. The scheme does not cover employees within the construction industry because they are covered by the Pay As You Earn (PAYE) system.
Sherwin Currid helps many clients with their CIS obligations and has a detailed understanding of the scheme's requirements. If you have any questions about how the scheme operates or you would like us to support you with meeting the requirements of the scheme then please do not hesitate to get in touch.
Who is a CIS contractor or a subcontractor?
You should use the following definitions to determine whether you are a contractor or a subcontractor - you can also be both. If you meet the requirements for being a contractor or a subcontractor under the CIS scheme, then you need to comply with HMRC requirements.
You need to register as a contractor if you pay subcontractors for construction work.
You need to register as a subcontractor if you are paid for construction work by a business that is CIS-registered.
What work is classed as construction work for CIS?
For the purposes of CIS then construction work covers any construction work to a permanent or temporary building or structure. It also covers civil engineering work like roads and bridges.
The term construction covers preparing a site such as foundations or access work, demolition or dismantling, building work, alterations, repairs and decorating, installing systems for heat, light, power, water and ventilation. It also includes the cleaning of the insides of buildings after construction work.
There are some exceptions where you do not need to register. Key examples of this include architecture and surveying, scaffolding hire (with no labour), carpet fitting, making materials used in construction including plant and machinery, delivering materials and work on construction sites that’s clearly not construction, such as running a canteen.
Sherwin Currid can help you determine if the work you do falls under the CIS scheme.
Requirements for CIS Contractors
If you fall within the definition of a contractor for CIS purposes then you are required to register for CIS before you take on your first subcontractor.
When taking on a subcontractor you should ensure that you should not be taking them on as an employee and paying them via PAYE. You could receive a penalty if you get this wrong and do not engage with someone as an employee when they should be.
You will also need to check with HMRC that any subcontractors that you use are registered for CIS with HMRC.
When you pay your subcontractors then you will need to make deductions from their payments and pay these deductions over to HMRC. These payments will count as advance payments towards the subcontractors tax and National Insurance bill.
Finally, you will need to file monthly CIS returns to HMRC and keep full CIS records or you will risk fines and penalties from HMRC. CIS has very tight deadlines for monthly filings and Sherwin Currid can help you manage this.
Requirements for CIS Subcontractors
If you are working as a subcontractor under the Construction Industry Scheme (CIS) and you are working for a contractor then the contractor will deduct 20% from your payments and pass this over to HMRC.
These deductions will count as advance payments towards your tax and National Insurance bill.
If you are a subcontractor and do not register for the scheme then your contractor is required to deduct 30% from your payments.
If you do not want deductions made from your payments from subcontractors then it is possible to apply for ‘gross payment status’. Sherwin Currid can help you make an application, once you meet the criteria.
What is the VAT Domestic Reverse Charge for CIS businesses?
HMRC launched an initiative called the VAT reverse charge for construction. Having been delayed by Brexit this came into force in March 2021.
The charge was brought in as an anti-fraud measure to stop subcontractors charging VAT to contractors and then disappearing before the VAT is paid over to HMRC. This is commonly known as a missing trader fraud.
The initiative shifts the liability for accounting for output VAT from the supplier (subcontractor) to the customer (main contractor). This stops the supplier from disappearing and not paying the VAT over to HMRC.