The Construction Industry Scheme (CIS) is an area of tax rules which govern how contractors and subcontractors in the construction industry pay tax.
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How the CIS Works in Practice
In essence, the CIS turns contractors, who use subcontractors, into a tax collector.
The contractor will register for CIS, and take deductions from the payment made to subcontractors for construction-related work. These deductions are then reported and paid to HMRC, and count towards the subcontractors tax bill.
Contractors and SubcontractorsÂ
Contractors are businesses that hire subcontractors to carry out specific work or project. Subcontractors are businesses or persons that are hired by contractors to carryout construction work. You can be both a Contractor and Subcontractor for the purpose of the Construction Industry Scheme.
The Construction Industry Schemes covers all business structures, so applies whether you are a limited company, partnership or sole trader.
What do I need to do?
This depends on if you are a contractor or subcontractor. Contractors must –
·        Register for CIS
·        Deduct tax from the payments you make to subcontractors effected by the scheme
·        Report, and pay any deductions made to HMRC, using a CIS Return
·        Give subcontractors a copy of any deductions and payments made
Subcontractors don’t need to register for CIS. If you don’t register for CIS, you can still work as a subcontractor, however the contractor will deduct tax at a higher rate (30%, instead of 20%).
Subcontractors will need to declare income and any deductions in their tax return, whether they are registered for CIS or not.
How to register for CIS?
If you are looking to register as a contractor, you will need to follow the same process as becoming an employer, and register for PAYE.
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If you are a contractor who already operates as a sole trader, you can sign up for CIS through your Government Gateway account.
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Overpaid CIS tax
If you are a subcontractor and are paid through CIS, it is likely you will have over paid tax throughout the year. This is due to the deductions made not taking into account any allowances you are entitled to.
You can reclaim any overpaid tax through your self-assessment at the end of each tax year.
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