Construction Industry Scheme

• What is it?
  • A tax applied to certain construction workers. Tax is deducted from money paid over to a subcontractor at source and they receive the ‘net payment’
• Who does it apply to?
  • All construction work in the UK including jobs such as:
    • Site preparation
    • Alterations
    • Dismantling
    • Construction
    • Repairs
    • Decorating
    • Demolition
  • It applies to all businesses – Sole trader, partnership & Limited Company
  • The scheme only applies to companies who are providing work to other businesses not individuals.
• Contractor:
  • You are classed as a contractor if you pay someone to complete construction work on a job you are doing (a subcontractor)
  • You must register as a contractor with HMRC and complete monthly CIS returns declaring the payments and tax deducted from all your subcontractors.
  • Contractor must ‘verify’ each subcontractor – if verified then 20% tax will be deducted. If not verified, then 30% will be deducted.
  • CIS tax due is payable to HMRC every month
• Subcontractor:
  • You are a subcontractor if you are completing construction work for a contractor.
  • You will have CIS tax deducted from your income – i.e you will receive the net amount.
  • You should be provided with monthly statements from your contractors confirming the amount of CIS tax deducted.
• How to calculate the CIS tax:
  • Gross amount less VAT (incl any expenses reimbursed to the subcontractor i.e accommodation, fuel for travel, mobile phone etc)
  • Deduct any payments made by the subcontractor for the following items:
    • Materials
    • Consumables
    • Fuel used for machinery – not fuel for travelling
    • Plant hire
  • Calculate 20/30% of the net figure
• How do subcontractors get the tax back?
  • Sole traders/partnerships – The amount of CIS deducted in a tax year is entered onto their tax return and is deducted off the total tax payable. It will either reduce the tax they owe or will result in a refund which will be issued by HMRC once the tax return has been processed.
  • Limited Companies – CIS is dealt with via payroll. The amount is deducted from any PAYE/NI and CIS tax due. This will either reduce the liability to pay over or will result in a refund being due. A refund should be issued at the end of the tax year via the year end payroll reports.