Taxes and Self Assesments are a regular part of life for many construction industry workers. And if you need help with Construction Industry Scheme (CIS) and submitting your Self Assessment then look no further than TaxScouts
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What is the Construction Industry Scheme (CIS)
The Construction Industry Scheme (CIS) is the set of tax rules that apply to the UK construction industry. The scheme allows subcontractors to make regular contributions towards their national insurance and tax obligations
Under the scheme, contractors deduct money from a subcontractor’s wage payment and pass it onto HMRC.
The deductions count as advance payments towards the subcontractor’s tax and National Insurance. Contractors must register for the scheme. Subcontractors don’t have to register, but deductions are taken from their payments at a higher rate if they’re not registered.
CIS is applicable to all contractors and subcontractors, including sole traders, partnerships or companies, that work in the construction industry. In addition, businesses that don’t fall under the construction tag but engage in construction work such as local authorities, housing associations and property developers, and spend £1 million or more each year in a three-year period need to comply with CIS. Here are the types of work that fall under the construction tag:
- general building (bricklaying, plastering, roofing, etc)
While CIS covers all construction work, there are specific jobs that aren’t covered and that includes:
- architecture and surveying
- scaffolding hire
- carpet fitting
- delivering materials
- working on construction sites on a non-construction related job, e.g. running a canteen
Does CIS apply to you?
There are two components of the Construction Industry Scheme (CIS), one is being a ‘contractor’ and one being a ‘subcontractor’.
If you are engaging other self-employed workers doing construction work then you are a contractor and must register under the CIS.
As a low-income self-employed worker, it is more likely that you will be engaged, or taken on, by a contractor to perform some construction work. This will mean you are a subcontractor. If you are a subcontractor then you can choose whether or not to register under the CIS.
How does CIS work?
If you decide to register for the CIS then the contractor must deduct and withhold 20% of the amount of your invoices for your work and any travel expenses.
The 20% deduction is then paid by the contractor to HMRC who will then treat it as an advance payment towards income tax and National Insurance contributions (NIC) for the particular tax year.
The individual will receive 80% of their invoice paid directly, according to the agreed invoice terms, along with the full amounts for any additional costs, such as materials.
The advantage of registering under the CIS is that the contractor only withholds deductions of 20% instead of 30%.
CIS for sub-contractors
Registering under the Construction Industry Scheme improves cash flow for subcontractors, as contractors have to make deductions when paying your invoices. Instead of deductions being made at 30%, they are made at 20% or in some cases not at all.
- Normally, 20% of the invoice value is deducted.
- If you are not registered with HMRC or they have been unable to verify you, 30% is deducted.
- If your turnover is at least £30,000 for a sole trader, or £30,000 for each partner or Director, or at least £100,000 for the whole partnership or company, and you have a record of good tax compliance, you can apply to HMRC to qualify for gross payment, without any deductions.
Deductions are not made in relation to VAT charged on an invoice or direct costs such as materials and equipment hire for the contract.
Construction Workers can use TaxScouts’ CIS rebate calculator to see if they qualify for a CIS rebate.