CIS FAQs – Below are some of the most frequently asked questions regarding the Construction Industry Scheme to assist both Contractors and Subcontractors.
CIS stands for the Construction Industry Scheme. HM Revenue & Customs have specific rules for businesses involved in construction.
These rules affect both Contractors and Subcontractors. Examples of work covered by CIS include Demolition, Building Work, Repairs and Decorating.
Not all construction activities are covered by CIS. Examples of work not covered by CIS include Surveying, Architecture, Carpet Fitting and supply of Materials Only.
For a full list see What Work Does CIS Cover?
A business operating in the construction sector becomes a Contractor when they appoint Subcontractors to carry out some of the work.
When this happens you MUST register as a Contractor.
To register as a Contractor you need to complete an HMRC application form. For a full explanation see, How do I register as a Contractor?
A business becomes a Subcontractor when they carry out construction work for a Contractor.
When this happens you CAN register as a Subcontractor.
To register as a Subcontractor you need to complete an HMRC application form. For a full explanation see, How do I register as Subcontractor?
When Subcontractors register with HMRC, they register as either a Gross Subcontractor (0% Tax Deduction), or a Net Subcontractor (20% Tax Deduction). Those who remain unregistered suffer a 30% Tax Deduction.
NOTE: A business carrying out construction work, directly for the homeowner (and not a Contractor), DOES NOT fall within CIS. They are not Subcontractors.
Contractors must verify all Subcontractors with HMRC.
During this process HMRC will inform the Contractor whether they should apply a 30%, 20% or 0% CIS Tax rate. The rate will be different for each Subcontractor.
This CIS Tax rate is then applied to the labour amount (and non-qualifying materials) stated on the invoice.
Our website includes a very handy calculator for Contractors, which will calculate the correct CIS tax to deduct from a Subcontractors invoice. It also covers the verification process and what are qualifying materials with plenty of easy to follow examples.
Contractors are required to verify all Subcontractors and deduct the correct amount of CIS Tax.
Every month Contractors must file a monthly return to HMRC. This includes details of all payments made to Subcontractors. This form is known as a CIS300. For more information including an example of a CIS300 form see our CIS monthly return blog.
Contractors must also provide Subcontractors with a Payment & Deduction Statement. This is the written evidence which a Subcontractor needs to prove that they have suffered a CIS Tax deduction.
Subcontractors are required to provide their Unique Tax Reference (UTR) to the Contractor. This enables the Contractor to complete the verification process.
Invoices provided by Subcontractors should clearly show a split between labour and materials. This enables the Contractor to calculate the correct CIS Tax deduction. (n.b Subcontractors who are registered as Gross do not need to provide this breakdown as they suffer 0% CIS Tax deductions).
Subcontractors must retain copies of payment & deduction statements received from Contractors.
CIS Tax is not an additional tax. Subcontractors who do suffer any CIS Tax deductions can reclaim it from HMRC.
Subcontractors who are also employers can deduct CIS Tax suffered against any PAYE or National Insurance liabilities. For example at the end of the Tax month a Subcontractor owes PAYE & NI of £10,000 but has suffered CIS Tax deductions of £7,000. In this situation the Subcontractor can pay over the difference of £3,000 to HMRC.
At the end of the tax year (5th April) any outstanding CIS Tax can be reclaimed from HMRC.
Soletraders include the CIS Tax deductions on their personal tax return and request the repayment via self-assessment.
Companies typically request that any CIS Tax suffered is offset against their Corporation Tax Liability.
At Patterson Hall Chartered Accountants we have dozens of helpful blogs covering all aspects of Tax on the Construction Industry. The full list of blogs is available from our CIS-Accountants page. Also, there is a contact us section for any further CIS queries you may have.
DISCLAIMER – Please note that the content contained in this article is for general information only and is not a substitute for professional advice – read our full disclaimer