Everything you need to know about the Construction Industry Scheme (CIS)

CIS

If you are working in the construction industry you may need to make deductions under the Construction Industry Scheme (CIS).

CIS covers many types of construction work including building work, plastering, plumbing, electrical, decorating among many other works.

 Contractors

You are a CIS contractor if you hire subcontractors to carry out construction works within the scope of CIS. You will need to register with HMRC as a CIS contractor.

As a CIS contractor you are required to make deductions from your subcontractors every time you pay them. These deductions must be paid to HMRC each month.

You will need to report the amount paid to and deducted from subcontractors every month on your CIS monthly return (CIS300).

To make sure you are deducting the correct amount from your subcontractors you must verify them with HMRC before you pay them.

The standard rate of deductions is 20%, if your subcontractor has not registered under the CIS scheme with HMRC the deduction rate will be 30%.

If your subcontractor has CIS gross payment status you will not need to make deductions, you still need to report the amount paid to these subcontractors on your monthly return.

 Subcontractors

If you are working as a subcontractor carrying out any construction work within the scope of CIS you need to register with HMRC as a CIS subcontractor.

The standard rate of deduction under CIS is 20% however, if you do not register with HMRC you will be subject to higher deductions at 30%.

If you are a sole trader or partnership any deductions from your income can be claimed back on your tax return to reduce your tax bill, you may even receive a tax rebate if you have over paid.

If you are a limited company, deductions are added to your PAYE account, if you have employees your monthly PAYE payments will be reduced. If you do not pay PAYE you can reclaim CIS deductions at the end of the tax year.

 CIS & VAT

If you are working in the construction industry and are registered for VAT, your sales may be subject to the VAT domestic reverse charge for building and construction services (CIS Reverse Charge).

The CIS Reverse Charge may apply if both the contractor & subcontractor are registered for VAT.

When the CIS Reverse Charge applies you do not charge VAT on your invoice but must clearly state that you have applied the CIS Reverse Charge.

CIS reverse charge invoices should still be included on your VAT return.

If you have any more questions on the CIS, please reach out to Cannon Accountants for detailed discussion and personalised advise.

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