Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments and pass it to HMRC.
The deductions count as advance payments towards the subcontractor’s tax and National Insurance, much as how PAYE operates.
Contractors must register for the scheme. Subcontractors don’t have to register, but deductions are taken from their payments at a higher rate if they’re not registered, we can register both contractors and subcontractors.
What you must do as a contractor
You must register as a contractor with the Construction Industry Scheme (CIS) if:
• you pay subcontractors to do construction work
• your business doesn’t do construction work but you usually spend more than £1 million a year on construction
Rules you must follow
1. Must register for CIS before you take on your first subcontractor.
2. Must check if you should employ the person instead of subcontracting the work. WARNING you may get a penalty if they should be an employee instead.
3. Check with HM Revenue and Customs (HMRC) that your subcontractors are registered with CIS.
4. When you pay subcontractors, you’ll usually need to make deductions from their payments and pay the money to HMRC. Deductions count as advance payments towards the subcontractor’s tax and National Insurance bill.
5. You’ll need to file monthly returns and keep full CIS records - you may get a penalty if you don’t.
6. You must let HMRC know about any changes to your business.
What you must do as a subcontractor
You should register for the Construction Industry Scheme (CIS) if you work for a contractor and you’re one of the following:
• the owner of a limited company
• a partner in a partnership or trust
Under CIS, a contractor must deduct 20% from your payments and pass it to HM Revenue and Customs (HMRC).
These deductions count as advance payments towards your tax and National Insurance bill, in a similar way PAYE deductions are made from employees
If you do not register for the scheme, contractors must deduct 30% from your payments instead, it benefits your subcontractors if they are registered.
If you do not want deductions to be made in advance by contractors, you can apply for ‘gross payment status’. You can do this when you register for CIS.