Get A Quote
h

A contractor’s guide to the Construction Industry Scheme

The Construction Industry Scheme (CIS) is a complex topic that covers a lot of ground. This helpful guide will point contractors in the right direction.

Home » Tradesman Insights » A contractor’s guide to the Construction Industry Scheme

Who does the scheme apply to?

If you’re a contractor who hires sub-contractors, it’s a legal requirement to register with the Construction Industry Scheme.

The scheme was set-up to make sure contractors deduct both national insurance and tax from payments made to subcontractors, and applies when:

  • contractors pay subcontractors for construction work
  • a business that does not do construction work but has spent more than £3 million on construction in the 12 months

What deductions must be made?

Sub-contractors do not have to register, however there are tax benefits if they do.

  • If a subcontractor is registered with CIS, 20% tax is deducted from their pay.
  • If a subcontractor isn’t registered with CIS, the tax rate they must pay is 30%.

For contractors, it’s a good idea to check that the subcontractor being hired is registered with HMRC. Understanding the employment status of subcontractors will make it easier to calculate deductions when they are paid.

Contractors may have to deduct tax and national insurance contributions and pass this amount on to HMRC. Or, the subcontractor is paid in full and will make their own deductions.

There is more information about verifying a subcontractors status on the gov.uk website.

If contractors make deductions on behalf of the subcontractor, they must send payments to HMRC each month. This can be done online through the PAYE and national insurance payment system, and the following information must be included:

  • details of the subcontractors
  • details of the payments made, and any deductions withheld
  • a declaration that the employment status of all subcontractors has been considered
  • a declaration that all subcontractors that need to be verified have been verified

What work is covered by the scheme?

It’s also important to understand what kind of work is covered by the scheme and what is exempt.

The scheme includes work on:

  • a permanent or temporary building or structure
  • civil engineering work like roads and bridges

Construction work includes:

  • preparing the site – for example, laying foundations and providing access works
  • demolition and dismantling
  • building work
  • alterations, repairs and decorating
  • installing systems for heating, lighting, power, water and ventilation
  • cleaning the inside of buildings after construction work

The above list includes all work carried out in the UK, and applies even if your company is registered overseas.

There are also a number of exceptions, and if you trade in these areas as a contractor, you do not need to register with the CIS.

  • architecture and surveying
  • scaffolding hire (with no labour)
  • carpet fitting
  • making materials used in construction including plant and machinery
  • delivering materials
  • work on construction sites that’s clearly not construction – for example, running a canteen or site facilities

What if contractors don’t register with the CIS?

There are several penalties, if contractors do not keep up with payments to HMRC. Contractors who fail to submit a monthly return on time will have to pay a fixed penalty of £100.

Non payment, or missed filing dates, will also result in a:

  • second fixed penalty of £200 — 2 months after the filing date
  • tax-geared penalty which is the greater of £300 or 5% of any deductions shown on the return — 6 months after the filing date
  • second tax-geared penalty which is the greater of £300 or 5% of any deductions shown on the return

A contractor not registered with CIS can face a fine of £3,000, plus £100 for each month deductions have not been filed with HMRC.

Contractors can register for the Construction Industry Scheme online, and once an account has been created they will have access to a number of tools to help manage their business’ accounts.

And remember, subcontractors will pay a lower tax rate when they register with the CIS, too.

Tradesman Talk

Are you a contractor who hires subcontractors on a regular basis? Do you think the CIS system is easy to use and make payments? Or does the process need to be clearer, less time consuming, and more user-friendly?

Leave your thoughts in the comments below.

Leave a comment

2 Comments

Hi I’m a self employed sub contract bricklayer who gets paid through the CIS scheme (20% deduction). I work for one of the major house builders (Persimmons) and they charge me 1.5% of my wage for CITB training. I was wondering if this was legal? And if so would I be allowed to claim it back on my tax return.

Reply to Mark Barraclough

Hi Mark. Thanks for your message. Unfortunately, we can’t give advice on contracts or deductions made on wages. If you haven’t done so already, it’s worth asking Persimmons about the 1.5%, or contacting HMRC. Let us know how you get on. Cheers.

Reply to Tradesman Saver
VanSaver - Van insurance from leading insurers - Compare Quotes. £50 from me to you. Refer a friend.
*This indicative price is for £1m public and products liability, £250,000 legal expenses, £10,000 financial loss and £10,000 accidental death insurance cover for a sole trader. The price includes insurance premium tax but excludes our admin charge. 19% of new customers paid less than £59 between 1st January 2021 and 28th February 2021. The actual price you pay will depend upon your specific business requirements and will be affected by your trade, your claims history and the optional covers you select which are all priced separately during the quote process. This website is intended for customers based in the UK and is therefore subject to the UK regulatory regime(s) © Copyright 2022 Tradesman Saver | Tradesman Saver and Henry Seymour & Co. are trading names of Barkdene Limited which is authorised and regulated by the Financial Conduct Authority (FRN 303965) for our insurance distribution and credit broking activities. Barkdene Limited is a credit broker not a lender. You can check this on the Financial Services register.
Registered in England No 1842617. Registered Office – Chancery House, St Nicholas Way, Sutton, Surrey, SM1 1JB. All rights reserved.
You need to be logged in to Your Account to make a payment. Redirecting you to Account Login.