Working in the construction industry probably means you’ve heard of the construction industry scheme (CIS). But while it’s often talked about, it can be harder to understand because it’s quite complicated.
The team at Coveney Nicholls is on hand to make things simple. Here, we explain the inner workings of CIS and how it may affect you and the industry.
What is it?
CIS is a tax deduction scheme used by HMRC to work around cash-in-hand payments in construction.
Even though this form of payment is common and legal, there are a lot of people who don’t declare the cash to HMRC, which amounts to £3.5 billion a year.
This tax deduction applies to any payments made by a contractor to a subcontractor and deducts 20% off the total amount to pay HMRC. If a subcontractor isn’t part of the CIS, they’d need to pay 30% of their wages to HMRC.
If a subcontractor hires another, they are considered the contractor in the eyes of HMRC for CIS.
If you’re an employee, won’t need to worry about the CIS at all, as your tax will be automatically deducted by PAYE.
When does CIS apply?
CIS applies to all payments made under a construction contract relating to work carried out not under an employment contract.
The rules state a contractor is any propertydeveloper, builder, or business that doesn’t carry out construction work but has spent more than £3m on construction in the year since its first payment.
As stated previously, any subcontractor who hires another essentially becomes a contractor. If the contract relates to something other than construction, CIS will still apply.
If you fall under both categories then you must register as both a contractor and a subcontractor.
CIS covers a range of different construction works, such as:
- Permanent or temporary build and structure
- Civil engineering work like roads or bridges
- Cleaning the inside of buildings after work has been completed
- Alterations, repairs or decorating.
There are exceptions for some workers, as certain jobs don’t require a worker to register for CIS. Carpet fitters, architects or surveyors and people delivering materials, for example, aren’t required to register.
The same rules of CIS apply if your business is based outside the UK but you do construction work as a contractor or subcontractor in the UK.
Gross payment status
Workers who have gross payment status (GPS) will be paid in full by contractors without CIS deductions.
At the end of the tax year, anyone with GPS will be required to pay tax and National Insurance in one go, which can prove to be beneficial for cashflow as long as you budget correctly.
To qualify for GPS, you will need a turnover above £30,000. For partnerships or limited companies, each partner or director must each have a turnover of £30,000 or £100,000 overall.
At Coveney Nicholls, we have years of experience when it comes to dealing with HMRC and CIS obligations.
If you have any further questions about how CIS may affect you, get in touch.