Business Limited company Self employed

Construction Industry (CIS) Scheme and Subcontractors

cis scheme

Have you ever heard of the CIS scheme? The CIS scheme, or Construction Industry Scheme, is a new set of important rules outlining how contractors pay subcontractors. This scheme is highly important for all contractors and subcontractors working in the construction industry to understand. Luckily, we’ve outlined some of the key things you need to know about the Construction Industry Scheme as follows to help you learn a little more.

What is the CIS Scheme?

Before we go any further, we need to first outline what the CIS scheme is, anyway. The construction industry scheme (also known as CIS) is a unique set of rules outlining how subcontractors’ taxes are paid.

For the subcontractor, the tax is deducted from payments at the outset. This offers an alternative rather than paying taxes through self-assessment normally.

Who Does the CIS Scheme Apply To?

The CIS scheme applies to numerous different individuals within the construction industry field. Namely, it mainly applies to contractors and subcontractors. Still, it’s helpful for any stakeholder in the construction field to understand what the CIS is.

For Contractors

A construction industry business that employs subcontractors as part of its regular work may have to register as a contractor. In addition, if a business is not within the construction field but has invested over £3 million in construction projects over the last year, it may also need to register as a contractor if it employed subcontractors to do this work.

For Subcontractors

Subcontractors working on construction projects are likelier to be eligible for the CIS scheme. Any subcontractor that works for a contractor (as defined above) will be taxed according to the CIS scheme.

It is important to note here that there is no specific requirement for a subcontractor to sign up for the Construction Industry Scheme. However, they will still be charged accordingly if they do not sign up. As such, this is very important to keep in mind. Moreover, if the subcontractor does not sign up, there is a high chance that they will be charged a higher rate than normal.

Subcontracting vs Employee Work

It’s easy to get confused between subcontracting work and employed work. The main difference here is that employees have a contract with the employer and are employed directly. By contrast, as a subcontractor, you may work for many different people throughout the year, and the contractor will be a client rather than your employer.

All contractors are responsible for checking your employment status before subcontracting work can begin. Luckily, the HMRC’s CEST (Confirmation of Employment Status Tool) can help with this. The CEST allows a business or contractor to quickly determine whether a worker counts as an employee or a self-employed subcontractor for taxation purposes.

What Works are Covered by the CIS Scheme?

The majority of tasks on a construction site directly relating to the construction project will be covered by the CIS scheme. These include tasks such as preparing sites for construction and erecting both temporary and permanent structures. Building work, demolishing, alterations, repairs, new electrical systems, and the like may also count.

Are There Any Exceptions to the Construction Industry Scheme?

While the CIS Scheme covers most works, there are a few exceptions. For example, architecture and surveying work will not require the CIS scheme. In addition, carpet fitting, scaffolding hire (without additional labour), material manufacturing and delivery, and non-construction-related work on a construction site are all exempt.

It’s important to note that businesses located outside of the UK but providing construction work within the UK will still need to meet the requirements of the Construction Industry Schemes.

How Much are Deductions for CIS?

As standard, deductions for CIS are 20% of the total payment. This deduction is taken from the subcontractor’s payments. Don’t worry – these funds are then used to contribute to tax and NI. As such, the money isn’t lost; it will simply be used at a more appropriate time for taxation.

However, not all CIS deductions fall at 20%. In fact, if the subcontractor has not registered for the scheme, their deductions will be bumped even higher, up to 30%. As such, this can represent a further loss of earnings at around 10%.

So, while signing up for the Construction Industry Scheme is unnecessary, keeping more money in your pocket is advisable.

What Information Do Subcontractors Need to Provide?

In order to complete the CIS scheme requirements, a subcontractor will need to provide several pieces of information. These vary depending on how the subcontractor operates their work. For example, a sole trader will need to provide their unique taxpayer reference number (UTR) and national insurance number. Meanwhile, a partnership must provide the UTR number, trading name, and the nominated partner. Finally, limited companies need to give their company’s UTR number, registration number, and full company name.

Fortunately, completing the paperwork for the CIS scheme is relatively easy, and this should all be handled by the contractor. However, don’t hesitate to get in touch with our friendly experts if you have further questions about what information you’ll need to give or how to submit payments through the CIS scheme.