Construction Industry Scheme (CIS)
The Construction Industry Scheme applies to many trades in the “Building Industry”. If you are a Bricklayer (Builder), Carpenter, Electrician, Plumber, Painter & Decorator, Plasterer, Scaffolder, Roofer or even a Carpet Fitter, this will apply to you. If you are working on a domestic household project and employed directly by the homeowner, you do not have to apply the CIS rules. The homeowner will pay your invoice in full and you will then have to pay your relevant taxes accordingly.
The Construction Industry Scheme was set up by HMRC to handle tax payments made by contractors to sub-contractors within the Construction Industry. For the sub-contractor, it may seem a bit harsh to have 20% of your invoice deducted and handed over to HMRC straight away. But, think of it like a savings plan, you may find that once you have taken your expenses from your income, what you have paid out already more than covers your final tax return bill.
Under the scheme, the ‘‘Contractor” will deduct a percentage of the money due to their “Sub-contractor” at the time of paying the invoice. At the end of each month, all deductions will be added up, and the “Contractor” will submit a return to HMRC which shows each “Sub-contractor” their UTR and how much has been deducted. Once this return has been submitted the “Contractor” then pays the monies collected over to HMRC.
Somewhere in the middle of CIS you could end up being a “Contractor” and a “Sub-contractor”, you may be a Plumber and require the help of another Plumber to complete a job. This job is working for a Building Contractor, who in turn is being employed by an individual to lets say renovate a house. Here, the individual (home owner) is the employer, he is paying the Builder who is the “Contractor”.
The Builder employs you as the Plumber – you are the “Sub-contractor” because you will invoice the Builder, he will pay you, you then employ another Plumber to help you. He invoices you, you now become the “Contractor” as well as being a “Sub-contractor”. Confused – call us, we will help you out, but don’t forget to pay your mate who was helping you out on that job!!
A bit of technical stuff now, but again we can help you with all of this:-
Duties of a Contractor (under HMRC CIS)
- Register for CIS before employing first sub-contractor
- Register all known sub-contractors with the scheme before construction begins
- Let HMRC know of any changes to the business
- Find out if you should employ a person rather than sub-contracting the work
- Make deductions from subcontractors and pay money to HMRC
- File monthly returns and keep full CIS records (there are penalties if you don’t)
One final note, if you are one of the tradesmen listed at the top of this page, yet you have not told HMRC you need to be part of the CIS scheme and you do work for a contractor, it is very likely you will incur a 30% (higher rate) deduction from your invoice. This is because HMRC cannot verify you and request a larger deduction to be held as an advance payment on your tax account.