The Construction Industry Scheme is a scheme that applies to payments to self-employed workers and businesses in the Construction Industry. Under the scheme tax is deducted from payments and paid over to HMRC.
There are two sorts of people that need to register with HMRC for the CIS scheme:
Firstly, subcontractors. If you are paid by a building contractor for doing work in the CIS, then you need to register with HMRC as a subcontractor.
There are a couple of ways to do this:
You can go online via the ‘Government Gateway’ – or you can Telephone HMRC on the CIS helpline (0300 200 3210) and give your UTR – or your company’s UTR if registering as a company – and personal details including your national Insurance number and – if appropriate – your VAT number. A short while later you get a confirmation from HMRC.
Then, when your Contractor hires you – you give them your UTR and your NI number (if self-employed) or the Company number and company UTR (if you are trading as a company). Your Contractor then goes online to verify your CIS status. And, if you are registered, they deduct 20% tax from your invoice (excluding VAT and materials). If you aren’t registered for the CIS scheme, they should deduct 30%!
When you complete your Tax Return, you get credit for any CIS tax deducted – either off income tax, Corporation Tax or deducted from any PAYE/NI payments you may make as an employer.
There is another type of CIS registration as a subcontractor: If your turnover exceeds £30,000 (or £30,000 per Partner in a partnership or director of your company) you can register for the Gross Payments Scheme – again either by telephone or online – and then your Contractors will pay you without deduction of CIS tax – which can greatly help your cash flow.
Secondly, Contractors need to register for the CIS scheme.
Often this is done when you or your accountant register for PAYE. You just tick another box that asks: “will you be engaging any subcontractors in the Construction Industry”.
If you are already registered for PAYE before becoming a Contractor, then you need to call the CIS helpline (0300 200 3210) and explain that you need to register as a Contractor under the CIS scheme but that you are already registered for PAYE. You will need to give certain information – your PAYE reference and UTR number – and then the registration can be simply done by HMRC updating their system.
Obviously, you then need to familiarise yourself with how to verify subcontractors, how to calculate the CIS tax; and how to report the information to HMRC each and record payments to Subcontractors each month.