What is the construction industry scheme?

There are several schemes and regulations in place to ensure that there is no tax evasion within the UK construction industry. This includes payments made by contractors. All UK contractors must follow the Construction Industry Scheme (CIS) when paying their subcontractors or sole traders.

What is the Construction Industry Scheme?

The Construction Industry Scheme (CIS) is an HM Revenue and Customs (HMRC) scheme that requires all contractors and deemed contractors to make tax deductions on behalf of subcontractors. These deductions count as advanced payments to a subcontractor’s tax and National Insurance and are passed to HMRC. A ‘deemed’ contractor is when a business does not do construction but has spent more than £3 million on construction within 12 months.

Under the Construction Industry Scheme (CIS), contractors must deduct 20% from their subcontractors payments. If you do not register for CIS, contractors will be required to deduct 30% from your payments instead – which is a big difference when added up over a lengthy contract period. As a subcontractor, you are not required to register for the scheme. However, it can be very beneficial as you will save 10% on tax deductions each month. It is important to note that this scheme does not apply to payments made to employees.

Who should register for the Construction Industry Scheme?

As a contractor, you must register for CIS before taking on your first subcontractor. There are specific requirements to be able to register under the CIS. You should sign up if you are a:

• Sole trader
• Owner of a limited company
• Partner in a partnership of trust

There are a few exemptions for different types of contractor work. The scheme does not apply to your work if:

• It is paid by a trust or charity
• It is paid for by a governing body of a maintained school
• The work is worth less than £1000 and is carried out on the subcontractor’s own property

What is the CIS registration process like?

After assessing whether you need to be registered under the scheme, there are a few steps to follow. These steps are generally much faster and simpler than they were 10 years ago, as the scheme has undergone many changes to make the process less lengthy and complex.

To register for the Construction Industry Scheme, you will need a few key details to start with. This includes:

• Your business name
• Your business Unique Taxpayer Reference (UTR)
• VAT registration number (applicable only if you are VAT registered)
• The date you began trading

It is quicker to register online, however the Government provides options to register via post. You can also register for CIS even if you are a subcontractor based abroad who does construction in the UK. There is a different process for subcontractors based outside the UK to register for CIS.

Once registered, there are a few rules you MUST follow. The CIS rules are as follows:

1. You must ensure you are registered for CIS before you take on your first subcontractor.
2. You should always consider whether you should employ the person instead of subcontracting the work. You could face a penalty if the individual could be an employee.
3. You should always check with HMRC that your subcontractors are registered under CIS.
4. Deductions for your payments to subcontractors should be made by you and you should pay the money to HMRC.
5. You will be required to file monthly returns. Alongside this, CIS records must be kept.
6. Any changes to your business should be communicated with HMRC.

What work is covered under the Construction Industry Scheme?

The CIS covers the majority of construction work on the following type of infrastructure: permanent or temporary buildings or structures; and, civil engineering work like roads and bridges.

The scheme covers a variety of work on these infrastructure types. This includes work such as:

• Building work
• Demolition and dismantling
• Repairs, decorating, and alterations
• Preparing the site
• Installing systems for heating, power, water, lighting, and ventilation
• Cleaning inside of buildings after construction work

However, there are some exemptions, meaning you do not have to be registered under the scheme. This type of work includes:

• Surveying and architecture
• Carpet fitting
• Scaffolding hire – labour free
• Making materials used in construction
• Delivering goods and materials
• Work on construction sites that are clearly not construction

How can One Two One assist?

Our team of specialists at One Two One supports over 75 sole traders (subcontractors). With over 15 years of experience and systems in place to speed up any Construction Industry Scheme claims, our wealth of expertise ensures you will only pay what you need to pay to HMRC.

This means we can seamlessly ensure what is rightfully yours will end up back in your pocket.

Looking back at the history of the Construction Industry Scheme, the scheme was initially introduced to ensure that subcontractors were not evading and paying their fair share of tax. To this day, the Construction Industry Scheme remains an integral part of the construction industry, ensuring that payment for contractors and subcontractors is regulated.

Get in touch today for more information on the Construction Industry Scheme (CIS).