What is CIS? The Construction Industry Scheme (CIS) is a tax deduction scheme where contractors deduct money from subcontractors' payments and pass it to HM Revenue and Customs (HMRC). CIS deductions are relieved at the source and act as advance payments for the subcontractor's tax and national insurance.
Builders who do not comply with the scheme may face penalties, including extra deductions and fines. Hence, understanding the CIS registration process is crucial for easing your operations. Fortunately, HMRC's website provides a comprehensive framework for CIS tax and related procedures.
However, the literature provided is extensive and confusing. As usual, much information must be inferred. Therefore, we have created this CIS guide to cover the main points more straightforwardly, including how to register for CIS online and navigate the HMRC CIS online service.
Understanding the basics
The CIS scheme focuses on businesses operating in the "construction work" line within the UK construction industry. However, HMRC's definition might not be what you think.
What is considered construction work?
The CIS considers all the following as construction work:
- Site preparation – This includes duties like laying foundations and providing access works.
- Alterations Dismantling
- Construction
- Repairs – This also includes cleaning the inside of buildings after construction.
- Decorating
- Demolition
This classification is central to the Construction Industry Scheme (CIS) and directly impacts CIS deductions.
An important side note: the CIS concerns all construction work completed inside the UK. Even if your business is based outside the UK, if the work is completed within the region, then you are subject to the CIS. (UK territorial waters up to the 12-mile limit are considered inside the UK.) This applies to overseas contractors as well.
There are also some apparent exceptions for what the CIS does not view as construction work:
- Architecture and surveying
- Scaffolding hire (with no labour)
- Carpet fitting
- Making materials used in construction, including plant and machinery
- Delivering materials
- **Work on construction sites that are not construction – **for example, running a canteen or site facilities.
What business types are considered under the scheme?
Contractors and subcontractors typically fall into one of these categories:
- Companies
- Partnerships
- Self-employed individuals (CIS self-employed)
What are the differences between contractors and subcontractors?
According to the CIS rules, a CIS contractor is a business that pays subcontractors for construction work, including construction companies, building firms, government departments, and local authorities. Under this system, private households would not be considered contractors and, therefore, must not adhere to these guidelines.
A CIS subcontractor is "a business that carries out construction work for a contractor". Sometimes, you may have to act as both or either party. In that case, follow the rules for both contractors and subcontractors. If you pay someone for construction work but do not consider them their own business, they should be regarded as employees, not subcontractors.
Under the CIS, contractors and subcontractors must diligently manage their income tax and National Insurance contributions, which may include submitting a self-assessment tax return.
Where should you get started?
Registering as an Employer
When ready to handle tax payments under the CIS, register as a new employer here. After registering, the HMRC will set up your Contractor Scheme and instruct you where to find further information, including how to access your business tax account.
Registering as a Subcontractor
When ready to start working in the construction industry, you should register for CIS online as a subcontractor. Regarding subcontractors, there are different forms depending on whether you are a sole trader or another type of business. You should check out the government site for more information on these forms. After you register, HMRC will contact you to confirm and provide information for the next steps, including your CIS registration number.
When registering as a subcontractor, you should also consider whether you want your contractor to make deductions or if you want to receive a gross payment. If you receive a gross income, you will still be responsible for deducting the appropriate taxes later. This is known as gross payment status, as opposed to net payment status, where deductions are made at the source.