Getting to know the Construction Industry Scheme
The Construction Industry Scheme (CIS) is an arrangement that contractors and subcontractors use to ensure payments to HM Revenue and Customs (HMRC) are fulfilled. CIS doesn’t apply to payments made to employees, since this is covered by the Pay As You Earn (PAYE) system.
What type of work is covered by the Construction Industry Scheme?
The CIS covers a range of construction work and this can include (but is not limited to) preparing, building on, dismantling or demolishing on a building site, installing utilities, decorating, taking on repairs and cleaning interiors.
How does the Construction Industry Scheme work?
The CIS instructs contractors to take 20% of the payment made to a subcontractor and pass this on to HMRC. This deduction acts as an advanced payment which goes towards the subcontractor’s tax and National Insurance (NI) contributions.
However, if your tax and NI works out as more than you should pay, you can claim a rebate from HMRC at the end of the tax year once you have submitted your tax return.
Should I register for the scheme?
Not all owners of limited companies need to do this. Generally speaking, you should register for CIS if you are self-employed as a contractor or sub-contractor in the construction industry.
Is the Construction Industry Scheme optional?
It’s not optional for contractors, who must sign up to the Construction Industry Scheme. However, subcontractors aren’t obliged to sign up. If you don’t register, the contractor must deduct 30% of your payments instead and you’ll have to approach HMRC yourself to claim back any overpaid tax.
You do not have to register for the CIS if you work in certain professions that are closely related to construction. For example, architecture, surveying, carpet fitting, delivering materials and running a non-construction service on site (like catering) are all exempt from the Construction Industry Scheme.
What if my contractor is based outside of the UK?
If you work in the UK for a business that is based outside of the UK, the Construction Industry Scheme rules still apply. This rule is in place for contractors and subcontractors alike.
How can I stay on top of things?
Keeping records will make things easier, especially when it comes to preparing your tax returns. So hold on to your invoices, bank statements and receipts for expenses as well as mileage records.
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