The construction industry is growing, with 314,590 firms operating in the UK in 2017 and an economic output of £113 billion.
If your business is one of them, it's likely you'll need to register for the construction industry scheme (CIS).
This comes with a set of complicated rules that can be hard to make sense of if you're new to it, and it affects contractors and subcontractors in different ways.
To provide a starting point, we've explained the basics of how the scheme works and who's included - but for more detailed information on how it affects you, talk to us.
What is the construction industry scheme?
Originally brought in to minimise tax evasion and protect workers from false employment, the CIS sets out rules regarding payments to subcontractors in the construction industry.
Under the scheme, contractors deduct money from a subcontractor's payments and pass it on to HMRC.
These deductions count as advance payments towards the subcontractor's tax and national insurance contributions.
Before making the payment, the contractor must verify the subcontractor's status with HMRC to establish the correct amount of tax to deduct.
The deduction rates are 20% for registered subcontractors and 30% for unregistered subcontractors.
Alternatively, the subcontractor can claim gross payment status and be paid in full, without deductions. Talk to us to find out more about gross payment status.
Contractors must then report all the payments they have made under the scheme to HMRC by the 19th of each month.
How do the deductions work?
If the subcontractor is a limited company, they can offset the deduction against their other company tax liabilities, such as PAYE, VAT, and corporation tax, or it can be refunded to the company after the end of the tax year.
Sole traders and partnerships are required to report their gross income on their self-assessment tax returns.
After this, the contractor deductions can be deducted from any income tax liability.
Do you need to register?
Contractors in the building industry that pay subcontractors to do construction work are required to register for the CIS.
Some businesses that don't carry out construction work may also be included in the scheme, as they must register if they usually spend more than £1 million a year on construction.
Subcontractors will be subject to a higher-rate deduction unless they register for the CIS.
It is possible for a business to be treated as both a contractor and subcontractor, and different rules apply to both of these statuses.
What kind of work is included?
The CIS covers most construction work in the UK that comes under the following categories:
- preparing the site, such as laying foundations and providing access works
- demolition and dismantling
- building work
- alterations, repairs and decorating
- installing systems for heating, lighting, power, water and ventilation
- cleaning the inside of buildings after construction work
However, it doesn't usually include people who only do specific jobs, such as architecture and surveying, carpet fitting, or delivering materials.
Domestic reverse charge
Contractors and subcontractors operating under the scheme should be aware of new VAT accounting rules will come into force in seven weeks.
From 1 October 2019, the domestic reverse charge will change the way VAT is paid for certain services in the construction industry. Talk to us for more information.
Speak to us about the construction industry scheme.