What is the CIS Scheme?
This guide explores what CIS is, its function, how it works, and the implications for those involved as a subcontractor in the construction industry.
What Is The Construction Industry Scheme as a subcontractor?
The Construction Industry Scheme (CIS) is a set of rules that HM Revenue and Customs (HMRC) uses to collect tax from certain construction work carried out by sub-contractors in the construction industry.
All self-employed sub-contractors for construction work will have to register for the scheme and have deductions taken from payments they receive for construction work before they receive the money. This money will then be paid directly to HMRC, who in turn credit it against the subcontractors’ tax liability.
What Is The Purpose Of The Construction Industry Scheme?
The Construction Industry Scheme (CIS) is a set of rules designed to ensure that subcontractors pay the correct amount of tax on the payments they receive from contractors. The payments made by contractors to subcontractors can either be deducted as Gross or Net payments, depending on the rules of the Scheme.
The CIS is an important part of the UK tax system, as it helps to ensure that those working in the construction industry are paying the correct amount of tax. This is especially important for subcontractors, who may not be aware of the correct tax rules. By using the CIS, contractors can be sure that they are deducting the right amount of tax from their payments to subcontractors.
This, in turn, enables HMRC to easily monitor and manage the amounts being paid and charged, reducing the risk of incorrect payments or tax evasion.
By creating this transparent payment process, the Construction Industry Scheme encourages fair and honest working practices within the industry, allowing construction firms to easily manage their financial obligations and ensuring subcontractors are paid for the work they are doing.
As a construction worker will I automatically pay tax under the CIS Scheme?
No, not all workers in the construction industry automatically pay tax under the Construction Industry Scheme (CIS). Whether someone has to pay tax under the scheme depends on the type of work they do and the way they are paid. Contractors must typically register for CIS and take tax deductions from payments to subcontractors, and some subcontractors may need to register too.
As a self-employed construction worker should I register under the Construction Industry Scheme?
Yes. The Construction Industry Scheme requires that all self-employed people must register as CIS contractors with HM Revenue & Customs (HMRC), and subcontractors must do the same, registering as a CIS subcontractor. Failure to comply will result in exclusion from the industry.
As a subcontractor do I have to pay CIS myself?
It depends on your agreement with the main contractor. If the main contractor is registered with the HMRC Construction Industry Scheme (CIS) and has agreed to pay your CIS returns and deductions, then you do not need to pay your own CIS returns or deductions. However, if you are the main contractor and have employees, then you must register with HMRC for CIS and make all the required payments.
How much tax will I pay as a subcontractor in the CIS scheme?
The tax you will pay as a subcontractor in the CIS scheme depends on your specific circumstances, such as your income level and other factors. Generally, CIS subcontractors are expected to pay both Income Tax and National Insurance Contributions. However, lower-income people may be eligible for tax breaks or other incentives, such as expense relief or employment allowance.
When a contractor pays you under CIS, they’ll typically withhold deductions at the standard rate of 20%. The rate may be increased to 30% in certain cases, such as when you are not registered for CIS; when your contractor can’t verify you; or when the wrong name is used for the business. Be sure to keep track of monthly statements detailing payments and deductions made – these will allow you to determine if additional tax and National Insurance need to be paid to HM Revenue & Customs (HMRC) or if a refund is due, this is where the Subbie Tax App can really help you!
How do I register for the CIS scheme?
If you’re a subcontractor, and ONLY a subcontractor (contractors who are also subcontractors need to register as both) you will need to register as a subcontractor. Registering for the Construction Industry Scheme (CIS) requires certain information to complete the process:
- Legal business name,
- National Insurance Number,
- Unique taxpayer reference number (UTR)
- Your VAT registration number if you are VAT registered.
How do I register for the CIS scheme as a sole trader?
Before registering for the CIS scheme, check if you are eligible. You need to be a sole trader who works in the construction industry as a contractor, subcontractor or both. You can register for the CIS scheme by visiting the HM Revenue and Customs (HMRC) website and filling in the registration form. If you operate as a sole trader and possess a Unique Taxpayer Reference (UTR), you can enroll in the CIS online. To do this, you will need the Government Gateway user ID and password that you utilised when you signed up for Self Assessment or any other government service.
Note that there may be additional steps, depending on your specific circumstances. It’s always a good idea to seek professional advice if you have any questions or concerns.
At Subbie Tax we can help you with all this – simply call us on 01782 366873
Wrapping up
We hope this guide has provided you with a clear and comprehensive understanding of the Construction Industry Scheme (CIS). The Subbie Tax app is designed to help you manage your deductions, claim expenses, and ensure your taxes are correct, making it an essential tool for any subcontractor. Download the Subbie Tax app now to take control of your finances and navigate the CIS with confidence.
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How does Subbie Tax Refund work?
When you complete the form, you’re assigned a personal accountant who will help you to fill in everything you need on the app to maximise your tax refund.
The kind of things you can claim back are :
- Digs and food if working way
- Protective clothing
- Driving your vehicle
- Taking public transport
- Tools
- Training costs
- Use of your mobile phone
Your accountant will answer any questions you have and they are just a button click away – Typically a refund is between £2000 & £4000!
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