The Construction Industry Scheme (CIS)

With our vast experience working with the Construction Industry over a number of years, this tax is one that we specialise in here at Kennedys Accounting, working both with the Self-employed and Limited Companies using the scheme.

What is CIS?

CIS was introduced as a tax just for the construction industry as a way to tackle fraud by workers not registering with HMRC.

How does the scheme work?

The scheme applies to payments made to self-employed workers and limited company businesses working in the Construction Industry.

Being on CIS means that tax is deducted from payments made and paid directly over to HMRC.

There are two groups of people that need to register with HMRC for the CIS scheme, which we will explain below:

1. Subcontractors

If you are working self employed and being paid by a building contractor for doing work and they are deducting CIS, then you need to ensure that you register with HMRC as a subcontractor.

How do you register?

You can either do this online via your ‘Government Gateway’ – or you can telephone HMRC on the CIS helpline (0300 200 3210) and give your Unique Tax Reference (UTR) and personal details including your National Insurance (NI) number and, if appropriate, your VAT number. You will then receive a confirmation from HMRC.

Each time you start working for a Contractor, they will ask for your UTR and your NI number. The Contractor will then verify your CIS status.

As you have registered, they will deduct 20% tax from your invoices (excluding any VAT and materials). If you aren’t registered for the CIS scheme, they will deduct 30%, so it’s certainly worth the phone call!

So what happens next – 20% of my invoice being deducted is a lot!

When you complete your Tax Return at the end of the financial year (April), you can use the credit for any CIS tax deducted to offset your income tax and NI. If it works out that you have overpaid tax, then HMRC will refund the money to you.

The sooner you complete your tax return at the end of the tax year, the sooner you will be able to claim any funds back.

If you are looking for help to complete your self assessment, then please get in touch with us here at Kennedys Accounting, we will be pleased to help.

2. Contractors

If you are employing subcontractors, you will need to ensure you are registered for CIS.

Usually when your accountant registers you for PAYE, they will also tick the box that asks: “will you be engaging any subcontractors in the Construction Industry” which means you are on the scheme.

If you have previously registered for PAYE before becoming a Contractor, then you need to call the CIS helpline (0300 200 3210) and advise HMRC that you need to register as a Contractor under CIS, but that you are already registered for PAYE.

HMRC will request certain information, so be ready with your PAYE reference and Company UTR number, and then the registration can be simply done by HMRC updating their system.

As a Contractor you will need to familiarise yourself with how to verify all subcontractors that you use, to ensure you are deducting the correct amount of money.

Each month that you have subcontractors working for you under CIS, you will need to deduct the CIS and pay it across to HMRC, referencing each subcontractor you do this for, so that it is correctly recorded on their records.

If you need assistance with how to complete any of these processes, please get in touch with us here at Kennedys Accounting, we have accounting packages which support your requirements and would be pleased to work with you and take care of your returns, we also have systems which enable us to make the payments on your behalf, both to your subcontractors and also to HMRC.

What if you’re working for a contractor, but still hiring subcontractors yourself? Your contractor will still make CIS deductions before paying you as normal. You will then take CIS payments out of your subcontractors pay. The amount you end up sending to HMRC depends on which is higher - the amount the contractor took from your pay, or what you’ve taken from your subcontractors.

What else do I need to consider when working under CIS?

Always make sure that all the details on your invoice are correct. Invoices should contain any trading name that you use and the respective UTR.

You need to be particularly careful if you change your status from being self-employed and then you begin trading as a limited company for example – as the UTR will change. If you use the wrong details, this may affect any refund that you are entitled to and cause enquiries at HMRC.

Gross Status

Once you have been trading for a year and all returns have been made on time and all payments made, you can apply for gross status, subject to certain conditions. This means that you will not have the 20% deducted. Although some do this as it can help their cashflow, you have to remember that you will not receive any refund, and instead will receive in most cases a tax bill at the end of the year.