The Construction Industry Scheme (CIS) is a government tax scheme that applies to payments made to self-employed subcontractors and businesses operating within the UK construction industry. Under the scheme, contractors must deduct tax from payments to subcontractors and pay these deductions over to HMRC as advance payments towards the subcontractor’s tax bill.
There are two main categories of people who need to register with HMRC for the Construction Industry Scheme:
Firstly, subcontractors. If you are paid by a contractor for carrying out construction work under the CIS, you must register with HMRC as a subcontractor.
You can register in several ways:
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Online via the official HMRC website using the Government Gateway ID.
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By calling HMRC’s CIS helpline on 0300 200 3210, providing your Unique Taxpayer Reference (UTR), your National Insurance number, and, if applicable, your VAT registration number or company UTR if registering as a limited company.
After registration, when your contractor hires you, you provide them with your UTR and National Insurance number (if self-employed) or your company registration number and company UTR (if trading as a limited company). Your contractor then verifies your CIS payment status online through HMRC’s online service. If you are registered, they will deduct 20% tax from your labour payments (excluding VAT and materials). If you are not registered, deductions will be at the higher rate of 30%.
When you complete your self assessment tax return, you receive credit for any CIS tax deducted, which is offset against your income tax, corporation tax, or any PAYE and National Insurance payments you may owe as an employer.
There is also the option for subcontractors to register for gross payment status if their turnover exceeds £30,000 (or £30,000 per partner in a partnership or director of a company). This means your contractors pay you in full without deducting CIS tax, which can significantly improve your cash flow. You can apply for gross payment status either online or by telephone.
Secondly, contractors must register for the CIS scheme if they engage subcontractors.
Often, contractors register for CIS when setting up PAYE by indicating that they will be engaging subcontractors in the construction industry. If you are already registered for PAYE before becoming a contractor, you should contact the CIS helpline (0300 200 3210) to register as a contractor under CIS, providing your PAYE reference and UTR. HMRC will then update their records accordingly.
Contractors must familiarise themselves with verifying subcontractor status, deducting the correct amount of tax, and submitting monthly returns to HMRC detailing payments and CIS deductions. Accurate record-keeping of payments to subcontractors each tax month is essential to ensure compliance.
By understanding your employment status and CIS payment status, whether as a sole trader, limited company, or partnership, and using HMRC’s online services, you can ensure that you pay the correct amount of tax and avoid penalties associated with late or incorrect registration or reporting.