Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC).
The Construction Industry Scheme (CIS) deduction rates are:
- 20% for registered subcontractors
- 30% for unregistered subcontractors
- 0% if the subcontractor has ‘gross payment’ status – e.g. they don’t have deductions made
If you make deductions, you must give the subcontractor a payment and deduction statement within 14 days of the end of each tax month. You could be fined up to £3,000 if you can’t show your CIS records when asked by HMRC.
The deductions count as advance payments towards the subcontractor’s tax and National Insurance.
You’ll need to file monthly returns and keep full CIS records – you will get a penalty if you don’t. The penalty for filing one day late is £100, for 2 months late it’s £200 and for 6 and 12 months late it’s £300 or 5% of the CIS deductions on the return, whichever’s higher. For returns later than this, you may be given an additional penalty of up to £3,000 or 100% of the CIS deductions on the return, whichever is higher.
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.
You must register as a contractor with the Construction Industry Scheme (CIS) if:
- you pay subcontractors to do construction work
- your business doesn’t do construction work but you usually spend more than £1 million a year on construction
- You may be a sole trader, in a partnership or own a limited company. Register as a subcontractor if you do construction work for a contractor. You must register as both if you fall under both categories
CIS covers most construction work to buildings, including site preparation, decorating and refurbishment.
If your business is construction and you pay subcontractors for construction work, you’re a ‘mainstream’ contractor. This applies if you’re a:
- labour agency
- gangmaster (or gang leader)
- property developer
You don’t have to register if you only do certain jobs, including
- architecture and surveying
- scaffolding hire (with no labour)
- carpet fitting
- delivering materials
- work on construction sites that is clearly not construction, e.g. running a canteen or site facilities