CIS FAQs

Many subcontractors find themselves overpaying tax and National Insurance contributions (NIC). If you are in this position then HMRC should automatically process your refund after you have completed and submitted your tax return. It is also important to remember to put the amount of CIS tax deducted in the correct box on the tax return.

You will receive a ‘payment and deduction’ statement, sometimes called a PDS, every time you are paid. The statement shows the contractor’s name, details of the payment(s) made, the cost of any materials incurred and the deduction(s) made from the payment(s). It is important that you retain these statements (as well as details of your expenses) as you will need them to do your tax return.

Under the CIS, contractors are required to check whether workers are ‘registered’ with HMRC. In order for the contractor to do this, they will need your Unique Taxpayer Reference (UTR) and National Insurance number.

As explained here, if you are a subcontractor, the payments you receive under the CIS may be subject to tax deductions – 20% for registered subcontractors; 30% for subcontractors not registered with the scheme. If you are a registered subcontractor and approved for gross payment status, then no deductions should be made under the CIS.

Any amounts withheld by the contractor will be paid to HMRC as advance payments towards your individual income tax and National Insurance contributions (NIC) bill for the relevant tax year.

If you are a self-employed subcontractor then you will usually need to complete a Self- Assessment tax return. When you complete your tax return you will need to include your total sales income, which will be the amount that you have invoiced, not the amount you received after the CIS deductions. This is the case even if your invoice includes amounts for things like materials, tool hire etc. Your tax return must also include any business expenses that are to be deducted from your self-employed income to arrive at your self-employed profit.

The amount of tax that has been deducted under the CIS should be entered in box 38 on page SES2 of the self-employed (short) pages and box 81 on page SEF4 of the self-employed (full) pages. This will mean that when your tax and NIC is calculated the advance payments that have been made through CIS deductions will be taken into account.

If you decide to register for the CIS then the contractor must deduct and withhold tax at a rate of 20% of the amount of your invoices.

If your invoice includes direct expenses such as materials or tool hire, then tax should not be withheld from these amounts, as you should be paid 100% of these costs without any CIS deductions withheld.

The 20% deduction is then paid by the contractor to HMRC who treat it as an advance payment towards your income tax and National Insurance contributions (NIC) for the particular tax year, as shown by your Self-Assessment tax return.

You then receive 80% of your invoice paid directly to you, according to your agreed invoice terms, along with the full amounts for any additional costs, such as materials.

The advantage of registering under the CIS is that the contractor only withholds deductions of 20% instead of 30% if you decide not to register.

Also, if you register for the CIS and your tax affairs are up-to-date then you can apply to HMRC to have gross payment status, which will allow the contractor to pay you without making any deductions at all, so you should be paid 100% of your invoices. GOV.UK explains the conditions you must pass for HMRC to agree to your application for gross payment status.

You can apply for gross payment status at the same time as registering as a subcontractor.

A contractor is a business or other concern that pays subcontractors for construction work.

A subcontractor is a person or body that has agreed to carry out construction operations for a contractor. The subcontractor may be carrying out the operations in any way, including:

– carrying out the operations themselves

– having the operations done by their own employees or subcontractors.

You do not have to register for the CIS scheme if you only do certain jobs, including: 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 ( running a canteen or site facilities).

If you aren’t sure whether your trading activity falls within the CIS scheme, further guidance is provided by HMRC.

CIS covers most construction work, this can include work to: a permanent or temporary building or structure and civil engineering work such as roads and bridges

For the purpose of CIS, 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.

Refer CIS manual for more information here.

Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC).

The deductions count as advance payments towards the subcontractor’s tax and National Insurance.

Contractors must register for the scheme. Subcontractors do not have to register, but deductions are taken from their payments at a higher rate if they’re not registered.

The Construction Industry Scheme (CIS) is a HMRC scheme for taxing individuals and businesses, including Limited Companies working within the construction industry.

All types of businesses that work within the construction industry are covered by the scheme. This includes Limited Companies, Partnerships and Self-employed individuals (sole traders).

The scheme covers all construction work carried out in the UK.

You should only pay tax under the CIS if you are genuinely employed.