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Construction Industry Scheme –

A guide for contractors and subcontractors

 

What is the Construction Industry Scheme (CIS)?

The Construction Industry Scheme sets out the rules for how payments to subcontractors are made and how they are accounted for and reported by contractors.

What is a contractor?

A business (limited company, partnership or individual) is a contractor and should register under the scheme if they either:

  • pay subcontractors for construction work
  • spend more than £1 million on construction work in a 3 year period

What is a subcontractor?

A business – limited company, partnership or sole trader, that does construction work for a contractor

Who needs to register with the Construction Industry Scheme (CIS)?

Contractors must register with the scheme.

Subcontractors don’t need to register with the scheme but the tax deducted from their payments will be higher if they don’t register

How do you register with the scheme?

Contractors can register with the scheme by:

  1. Complete the process for registering as a new employer (link: https://www.gov.uk/register-employer)
  2. Phoning the new employer helpline 0300 200 3211
  3. Phoning the CIS helpline on 0300 200 3210

Subcontractors can register with the scheme by:

  1. Phoning the CIS helpline on 0300 200 3210
  2. Complete form CIS305 (link https://www.gov.uk/government/publications/construction-industry-scheme-company-registration-cis305)

What are the tax deductions?

Tax is deducted on payments made to subcontractors by contractors.

Tax is deducted on the labour element of work, not material costs.

How is the tax deducted calculated?

The tax deducted is calculated based on the verification status of a subcontractor

Gross status – payments made without deduction of tax.

Net status – payments are made after a 20% deduction for tax.

Not verified – payments are made after a 30% deduction of tax.

How are subcontractors verified?

Subcontractors can be verified by:

  1. Using your Government Gateway online account
  2. By calling HMRC
  3. Using specialist software

You will certain information from subcontractors in order to verify their tax status:

Limited companies – you will need their company registration number and the company unique tax reference (UTR) which is a 10 digit number (often preceded by a 3 digit tax office number).

Individuals – you will need their national insurance number and their unique tax reference (UTR)

How can overpaid CIS tax be reclaimed?

There are a number of different ways:

If you are self employed or a sole trader overpaid tax can be reclaimed:

  1. When submitting your personal tax return
  2. By offsetting tax deducted against your monthly or quarterly payroll PAYE and NIC liability

If you trade through a limited company:

  1. By offsetting tax deducted against your monthly or quarterly payroll PAYE and NIC liability
  2. Claiming online if you have a Government Gateway online account
  3. Claim by post by writing to HMRC. Make sure you provide full details.

More details can be found here (link https://www.gov.uk/guidance/claim-a-refund-of-construction-industry-scheme-deductions-if-youre-a-limited-company)

 

Please get in touch if you need help.