What is the Construction Industry Scheme?

If you work as a self-employed builder or contractor, you must pay tax under the Construction Industry Scheme (CIS). Therefore, if you are new to the builder or contractor jobs and want to know more about the Construction Industry Scheme, then you will find all the information you need in this article.

We cover what the Construction Industry Scheme is, what is covered under this, if all tradespeople need to register for CIS, how to register if tradespeople pay tax through this and how tax is paid through CIS.

To get more insight into the construction sector, be sure to check our Construction Industry Statistics page (updated multiple times per week).

What is CIS?

Construction Industry Scheme (CIS) isn't a new law, as it was enacted in 1971 to address major tax evasion in the construction industry. Several adjustments have been made over the years to try and make it easier to understand and do, with the most current developments being announced by the UK government at the end of 2020. The latest CIS amendments came into effect on 6th April 2021.

Contractors in the construction business frequently hire independent subcontractors to work on projects with them rather than hiring full-time employees. Because these subcontractors are self-employed and not employees of the contractor, they are unable to contribute to Income Tax and National Insurance through PAYE. Instead, HMRC collects tax contributions from these subcontractors through the Construction Industry Scheme.

Contractors deduct money from subcontractor payments and then pay that money to HMRC. If both parties are VAT-registered, the VAT Domestic Reverse Charge may apply.

The system lays out how contractors in the construction/business industry and certain other businesses must handle payments to subcontractors for construction activity. It works similarly to PAYE for employees, except it's only for subcontractors.

The Construction Industry Scheme (CIS) is an HMRC scheme for self-employed individuals who work for contractors within the construction industry.

According to CIS regulations, the contractor is normally required to deduct tax from your payments. This is typically 20% if you are 'registered' or 30% if you are not.

It's vital to understand that, even if a contractor withholds tax on your payments and sends you documentation that looks like pay stubs, you are not being recognised as an employee. Therefore, you will not be entitled to any of the employment protections that come with being an employee.

The Construction Industry Scheme (CIS) covers work such as:

• Site clearance
• Demolition
• Repairs and maintenance
• Solar power installation
• Civil engineering
• Bathroom and kitchen fittings
• Heating, lighting and gas/electricity
• Installing water supplies
• Post-construction cleaning

If you provide construction industry services directly to a homeowner (rather than a contractor), you are not subject to the Construction Industry Scheme (CIS), and the consumer will pay you gross on invoice production. Whether you register as a subcontractor under the CIS determines the amount of tax that must be deducted by the contractor.

The Construction Industry Scheme (CIS) tax deduction regime applies to all payments made under a construction contract. Even if the contract encompasses matters other than building operations alone, the CIS tax deduction system will apply to all payments made under that contract.

If the contract is intended to include other topics, it should ideally be separated so that only payments related to construction operations are subject to the Construction Industry Scheme (CIS).

The regulation does not apply to all payments. For example, if a company that is not in the construction industry pays for construction work on a property that it utilises for its purposes, the Construction Industry Scheme (CIS) will not reimburse such costs. This does not apply to properties that are rented out or used as an investment.

What Construction Work is Covered Under the Construction Industry Scheme (CIS)?

The Construction Industry Scheme (CIS) covers multiple types of construction work in the UK, helping tradespeople by simplifying and speeding up the process, including those smaller jobs that are all too easy to try and put off.

It applies to contractors and subcontractors, whether they are sole traders, partnerships, limited companies (Ltd), or limited liability partnerships (LLPs). It also requires local governments, housing associations, and property developers to register if their annual investment exceeds £3 million in any rolling 12-month period.

Tasks such as preparing the construction site and laying foundations are covered by the CIS. It also covers demolition work, including the removal of load-bearing walls or any structure that is in the way of the project. They also cover construction work to ensure that everything is up to date and following the framework.

Please keep in mind that this only applies if the work is requested by a contractor. If the work is done in isolation, carpet and other floor types such as vinyl are not protected by Construction Industry Scheme (CIS).

If the hired plant comes with an operator, it is covered by Construction Industry Scheme (CIS). If the payment is solely for the hire of equipment without an operator, Construction Industry Scheme (CIS) does not apply.

Construction of a permanent or temporary building/structure is covered by Construction Industry Scheme (CIS) as well as civil engineering work such as roads and bridges.

Construction Industry Scheme (CIS) covers all alterations, repairs, and decorating, as well as the installation of heating, lighting, power, water, and ventilation systems. CIS is also responsible for cleaning the inside of buildings when construction is completed.

Do I Need to Be CIS Registered?

In summary, it is a legal requirement to be CIS registered in the UK when you work in the construction industry in either of the following contexts:

• Working as a subcontractor (self-employed) paid by a contractor
• If you are a contractor who employs subcontractors for construction work

Who is Exempt From the CIS Scheme?

While the CIS scheme relates to the majority of construction-based contractors and subcontractors, there are some areas that are exempt. For example, you do not need to register if your only role involves any of the following areas of work:

• Architecture or surveying
• Scaffolding rental (without labour fees)
• Site services (such as running the canteen)
• Non-construction roles
• Transport or construction shipments
• Manufacturing of tools and machinery
• General administrative duties

Any work carried out privately and not through a contractor is also exempt, along with non-construction renovations for a company's own use (such as office refurbishment) unless being actioned to gain direct investment.

Construction Industry Scheme (CIS) has no bearing on building work done in a country other than the United Kingdom. However, if a non-UK company performs building work in the UK, it must register for Construction Industry Scheme (CIS).

Do All Tradespeople Need to Register for the Construction Industry Scheme (CIS)?

As the Construction Industry Scheme only covers certain jobs, you are probably wondering, do you as a tradesperson need to register for Construction Industry Scheme (CIS)? Here, we will give you all the information you will need and know if you should register for the Construction Industry Scheme (CIS) depending on your job.

Don't risk heavy fines if your property management company pays subcontractors or spends a lot of money on construction. Make sure you're up to date on your taxes and register with HMRC.

Tradespeople may be required to register with the Construction Industry Scheme as a contractor. This includes having to verify payments to persons you hire as subcontractors, such as plumbers, builders, and carpenters.

If your business involves the use of other people's labour to complete construction work, you qualify. HMRC may classify you as a contractor who is required to participate in the scheme. Individuals, partnerships, and limited liability companies are all included. 'Creators of new buildings, renovations or conversions to existing buildings, or other civil engineering works' are what property developers are described as.

Independent craftsmen such as bricklayers, carpenters, painters, electricians, and plasterers, among others, are used by almost all property developers. As a result, practically all of them will be considered "contractors" and will need to apply for a Construction Industry Scheme (CIS).

HMRC implemented the programme to prevent tax avoidance in the construction business. Subcontractor cash payments were not always shown on individual tax returns in the past. The contractor is required to make deductions and report them to HMRC as part of the scheme's requirements.

Failure to register as a contractor could result in tens of thousands of pounds in fines (irrespective of whether workers are registered as self-employed and have paid their tax bill). Contractors must sign up for the programme.

How To Register for the Construction Industry Scheme (CIS)

You can register for the Construction Industry Scheme (CIS) if you work in the construction business and aren't exempt by providing them with your Unique Taxpayer Reference (UTR).

The tax plan was implemented to combat tax evasion in the construction industry, where self-employed subcontractors were operating but not disclosing their earnings for tax purposes. Or they were hit with unexpectedly large tax bills that they couldn't afford to pay.

This step-by-step guide to Construction Industry Scheme (CIS) registration online will show you how to apply for your Construction Industry Scheme (CIS) card from beginning to end. So, if you are unsure of how to register for the CIS here, we will go over all the small steps to make your process to register easy.

Registering as a Self-Employed Construction Industry Scheme (CIS) Subcontractor is a two-step process. Both processes can be accomplished online, and in most situations, you can do it yourself. You'll need to do the following:

Register as a self-employed individual

As a Construction Industry Scheme (CIS) subcontractor, you must register with HMRC.

To avoid payment complications and penalties from HMRC, get yourself registered as soon as feasible.

You'll need the following items to register for the Construction Industry Scheme:

• Your legal business name (you can also give a trading name if it's different from your legal business name)
• National Insurance Number (NIN) and your business' unique taxpayer reference number (UTR)
• Your VAT registration number (if you're VAT registered)

How to Register as Self-Employed

You'll need to register as self-employed with HMRC on their website. You will need to have your National Insurance number to hand before you begin the online self-employment registration process.

You are deemed self-employed as a CIS subcontractor, but you work for a contractor who must deduct a percentage of your invoice (typically 20%) and pay it to HMRC on your behalf. This is not the case for other self-employed individuals who are not in the construction industry and are paid the full amount invoiced gross with no reductions.

You can register for Construction Industry Scheme (CIS) online if you're a sole trader and already have a UTR. You'll need the user ID and password you used to register for Self-Assessment on the Government Gateway (or another government service).

At the same time, you can apply for gross payment status.

If you don't have a UTR, register for Self-Assessment as a new firm and select "operating as a subcontractor" when offered. At the same time, you'll be registered for both Self-Assessment and CIS.

Once you have it handy, then take the following steps:

• Go to the HMRC website and select "Register Online" from the drop-down menu
• Set up an online account with HMRC so you can manage your taxes from anywhere
• Then enrol yourself in a self-assessment programme online
• Wait for your UTR number to arrive in the mail, which normally takes up to 10 days to arrive
• You'll need to wait for your activation code before you can finish setting up your HMRC online account

Keep your UTR number and HMRC online account login information safe. To manage your taxes and register as a Construction Industry Scheme (CIS) contractor, you'll need these.

Step-by-Step Construction Industry Scheme (CIS) Online Registration

• Select whether you want to register for Construction Industry Scheme (CIS) payments on a net or gross basis
• Fill in your personal information, including your NI number. Your UTR number will be included in the form automatically, but you should double-check that it is right
• Fill in the blanks with information about your self-employment and whether you've ever been paid as a subcontractor
• If you have a trading name, tell HMRC about it now, together with your address
• A summary of all the information you've supplied will be displayed. Check that everything is correct and if something isn't, click the "edit" button
• Finally, you will be allowed to sign a declaration. Read the Construction Industry Scheme (CIS) declaration carefully and then click "Accept and Register" if you are satisfied
• A contractor is required by Construction Industry Scheme (CIS) to take 20% of your payments and send it to HMRC. These deductions are considered advance payments toward your tax and NI bills. Contractors are required to withdraw 30% from your payments if you do not register for the plan.

If you wish to avoid contractors making deductions in advance, you can apply for gross payment status when you register for Construction Industry Scheme (CIS). You'll need to meet certain requirements for this. If you're an employee, you don't need to register for CIS. You can also call the Construction Industry Scheme (CIS) helpline if you are struggling to register. This can be found on the gov website.

Do Tradespeople Pay Tax Under the Construction Industry Scheme?

Tax is can sometimes be complicated to pay when you are a tradesperson as sometimes you can be self-employed and must do all the bookkeeping yourself. However, you can pay tax under the Construction industry Scheme if you are a tradesperson. Therefore, in this section of the article, we will talk about tradespeople paying tax under Construction Industry Scheme (CIS).

One minute you're knee-deep in mud or electrical wires; the next, you're busy quoting new work, sending out invoices, and pursuing payments as a trade business owner/operator.

Paying Construction Industry Scheme (CIS) tax might add to the complexity of your administrative tasks, but technology can help you save time handling subcontractor tax. Even better, integrated systems can speed up your workflow, boosting your total productivity while guaranteeing you meet your tax obligations.

When used in conjunction with other programmes, it works effortlessly to assist you with subcontractor invoices and bills that fall under the Construction Industry Scheme (CIS) scheme. You'll have all the information you need to speed up the verification process, deduct the correct tax rates, and submit your payments on time when you submit your monthly Construction Industry Scheme (CIS) returns using your accounting software.

Because of technological advancements, you can spend less time thinking about your tax obligations and more time on the tools, driving business growth, or simply relaxing.

How is Tax Paid Under Construction Industry Scheme (CIS)?

For subcontractors, any payments received under the CIS may be subject to tax deductions. Registered subcontractors are subject to 20% deductions and 30% for non-registered subcontractors.

No deductions should be made under the Construction Industry Scheme (CIS) if you are a registered subcontractor and have been approved for gross payment status. Any money withheld by the contractor will be paid to HMRC as advance payments toward your tax and NI contributions bill for the relevant tax year.

If you're a self-employed subcontractor, you'll almost certainly need to file a Self-Assessment tax return.

Some tradespeople may not have to file a tax return if their total income before expenses and any miscellaneous outgoings is less than £1000 per tax year. You will also be exempt from filing a tax return if you did not claim for the Self-Employment Income Support (SEISS) grants.

You must include your whole sales income on your tax return, which is the amount you have invoiced rather than the amount you got after the Construction Industry Scheme (CIS) deductions. This is true even if your invoice includes charges for materials, tool rental, and so on. Any business expenses deducted from your self-employed revenue must also be shown on your tax return.

The amount you received from the Self-Employment Income Support Scheme (SEISS) awards must be mentioned on your tax return because it is taxable income. Even if you are Construction Industry Scheme (CIS) registered, the SEISS payments will be paid gross, meaning no tax will be withheld when you get them.

You'll find that most or all your tax have already been paid when you file your Self-Assessment tax return. Since the money was taxed at 20%, you may have overpaid. If this occurs, you may be eligible for a CIS tax refund.

Because you can deduct numerous work-related expenses from your tax return, you may find that you have a lot of money to claim back from the 20%you paid out over the year. The average cost of a CIS claim is £2000. We were created to claim tax refunds for construction, so no one knows more about getting the most money back in your pocket than we do.

Tax Refund

If you are subject to Construction Industry Scheme (CIS) taxation, your contractor is required to withhold tax from your payments. As a result, many persons in the Construction Industry Scheme (CIS) overpay tax and need to file a refund claim.

When Construction Industry Scheme (CIS) is used to deduct tax, and you have a lesser income, you will usually get a refund because of the trade expenditures and because you will usually have personal allowances available.

You may find information on the types of costs you may be entitled to claim in your tax return in our self-employment section. The general guideline is that all expenses must be incurred solely for your job.

It's important to remember this because HMRC may ask for proof that you, first, actually incurred an item and, second, that the expense was completely and solely for your business. You should not fabricate them or include private expenses to reduce your taxable profits and increase your return - this is prohibited and punishable by harsh fines.

You must complete a Self-Assessment tax return, and your refund will be reconciled as part of that process. Self-assessment tax returns can be complicated and intimidating to complete and submit. You may believe that hiring a tax preparer is your only option. However, you should be aware that there may be issues with certain tax agents when it comes to Construction Industry Scheme (CIS).

They may, for example, work for a percentage of your return rather than a flat charge and hence have a vested interest in boosting the claim's worth.

Expenses

You can include any expenses 'wholly and exclusively' paid out for your business. This could include tools and material costs, van expenses and administrative costs, such as mobile phone use.

HMRC may need evidence that you firstly incurred an expense and secondly that the expense was solely and exclusively for your business. You should only include business expenses on your tax return; if HMRC challenges your expenses and finds them to be inaccurate, you could face fines.

In most circumstances, such as tools or supplies, it will be obvious if they were purchased solely for the sake of your firm. If you use anything for both business and personal purposes, such as a phone or a vehicle, you should preserve records – phone bills, mileage logs, and so on – so that the right amount of business use can be determined.

Instead of claiming the actual business expenses you spent, you may be able to claim a lump sum amount equivalent to the 'trading allowance.' For most CIS-qualifying services between VAT-registered entities, the VAT Domestic Reverse Charge means the customer (not the supplier) accounts for the VAT.

Instead, principal contractors essentially charge themselves VAT for the services of subcontractors and pay HMRC the money that would have been paid to the subcontractor in their VAT returns. The new requirements also apply to commodities when they are offered in conjunction with CIS-specified services.

As a CIS subcontractor, it's not always clear what you may lawfully claim as expenses. It's a complicated industry, and many construction employees find up paying too much tax every year. Here's a quick breakdown of what you might be able to claim:

• Equipment - This can include tools and supplies, maintenance, and even laundry if it's work-related.
• Transport - Claim travel expenses, such as mileage for fuel and public transport fees.
• Accommodation - Hotels or temporary lodgings during work trips.
• Office Expenses - Covers office supplies, internet and phone bills.
• Allowable Expenses - Percentage part of home bills if working from home.

Conclusion

Overall, the Construction Industry Scheme (CIS) is an HMRC scheme that applies if you work for a contractor in the construction business as a self-employed individual rather than as an employee. As a result of the CIS laws, the contractor is normally required to deduct tax from your payments.

Having a Construction Industry Scheme (CIS) means that the Construction Industry Scheme (CIS) covers the construction of a permanent or temporary building or structure, civil engineering work such as roads and bridges, site preparation, building work, and other activities! Failure to register as a tradesperson might result in tens of thousands of pounds in fines (irrespective of whether workers are registered as self-employed and have paid their tax bill). Contractors must sign up for the programme.

Therefore, if you are a tradesperson looking at signing up to the Construction Industry Scheme (CIS), then you must register to make sure all your work is covered. It can make your life a lot easier to do so!

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