Working within the construction industry often means operating in a slightly different manner to other industries. Payments to subcontractors for construction work has to be handled by the contractors in the construction industry and a few other related businesses. This means being part of the Construction Industry Scheme, or CIS.
If you want to know more about what the CIS entails, then read below.
WHAT IS THE CONSTRUCTION INDUSTRY SCHEME (CIS)?
As part of CIS, all payments made from a contractor to a subcontractor must take into account the tax status of the subcontractor, determined by HMRC. This may mean the contractor has to make a deduction, paid to HMRC, for part of the payment which does not represent the cost of materials taken on by the subcontractor to do the job itself.
All deductions will then count towards the National Insurance and taxation costs of the subcontractor. However, a contractor must register for this scheme, while subcontractors will need to register if they wish to get paid at the lower standard rate of tax, currently 20%. Who counts as a subcontractor, though? Who counts as a contractor?
WHAT MAKES ME ELIGIBLE AS A CONTRACTOR/SUBCONTRACTOR?
Typically, you will count as a contractor if you do either of the following:
- Pay a subcontractor or subcontractors to carry out the construction work needed.
- You spend more than £1m/year on construction jobs within a 3-year period, but do not work within the construction industry.
- If you do work for a contractor, then you should look to register as a subcontractor.
If you happen to fall into the above categories, then you must register as part of the scheme. If you are interested in joining up as part of CIS, then you will have to make sure that you fit in with the above criteria or you will be unable to join.
WHAT WORK FALLS UNDER CIS JURISDICTION?
Typically, any work which covers construction of a permanent or temporary structure will count as CIS-covered work. So will any kind of civil engineering work such as a road or a bridge being constructed. You will also find that, at the time of writing the following construction projects would fall under CIS:
- Preparing for construction work, such as setting up access works.
- Any kind of building work, including decorating, repairs and/or extensions.
- Installation of new systems such as heating, power or air conditioning.
- Extensive cleaning after construction work has taken place.
- Demolition work or extensive dismantling of any building or structure.
Any work which might fall in with the above would likely fall under CIS. However, you should look to speak with an official to determine if a project that you are working on will be CIS covered. For example, some projects come with certain exemptions from CIS. What does this include?
DOES ANY CONSTRUCTION WORK FALL OUTSIDE CIS?
For the most part, any construction work which falls inside the categories will be exempt from CIS:
- Surveying work or architectural design work.
- Scaffolding hire without the use of any physical labour.
- The creation of materials used for construction purposes.
- The delivery of any materials.
- Running on-site facilities i.e. canteens, snack vans.
Please note that what constitutes CIS work or not can change quite a lot, so it pays to look individually at every project you might undertake. This allows for you to get a much steadier understanding of what work you carry out, if any, falls under CIS.
REGISTERING FOR CIS
Any business which could be marked as a company, a sole trader or another type will be eligible to register as part of CIS. To register as part of the wider scheme, you will need to register officially with HMRC. We recommend that you look to register with HMRC when you are about to take on your first subcontractor, or when you are about to take on your first role as a subcontractor if you wish to avoid higher deduction rates.
HMRC will work with you to set up what is known as a Contractor Scheme, and, if asked, a PAYE Scheme. If you are registering for Self Assessment, then if you tick ‘working as a subcontractor’ when prompted as part of your application you will be registered for both Self Assessment and CIS at the same time.
You should look to work with someone about registration if you are unsure about any aspects of being part of the Construction Industry Scheme. As ever, any complications or personal limitations can be easily corrected if you work with a specialist in CIS registration.
Please note that if your business is based outside of the United Kingdom, but does contractor/subcontractor work within the UK, can be eligible for CIS rules as well. Be sure to run through with a CIS specialist if you are unsure where you stand due to the location of your business, or the kind of work that you carry out.
GETTING FURTHER HELP
Of course, you might still be unsure of some specifics regarding how the construction industry scheme relates to your own personal circumstance. If that is the case, we recommend that you get in touch with our team here at Devonshire Green. We can take a closer look at your own CIS eligibility, and help you to make a decision on whether or not the CIS scheme makes sense for you.