How does the Construction Industry Scheme work?
With the aim to reduce levels of fraud and tax evasion, CIS is a tax deduction scheme.
It is essentially an upfront tax system not too dissimilar to the PAYE system for employees, in the sense that it requires contractors to withhold a certain percentage of the subcontractor’s payments and then pay this deduction to HMRC.
These deductions are then counted as advanced payments toward their tax and National Insurance (NI).
For further information on CIS, read our Construction Industry Scheme page.
Am I a contractor or a subcontractor when it comes to CIS?
Both contractors and subcontractors are affected by CIS, with each having different responsibilities.
A contractor is hired directly by a client to carry out a project and might need to then hire a subcontractor to help out with the work – this could be because they need additional workers, or there may be certain areas where they don’t have the expertise.
A subcontractor is hired by the contractor – not the client. So, as mentioned previously, they might have a specialist skill set that is required by the contractor for certain aspects of the project.
Is it possible to be both a contractor and a subcontractor?
Yes, it is possible to fall under both categories – in fact, it’s quite commonplace to count as both a contractor and subcontractor.
An example of this is if a subcontractor is hired for a project and in order to carry out their part of it, they need to then hire their own subcontractors.
Registering for CIS
If you are a contractor, then you must register for CIS, and if you are considered both a contractor and a subcontractor, you’ll need to register as both.
To register for CIS, you’ll need the following information:
- Your legal business name
- Your NI number
- Your UTR (Unique Tax Number)
- Your VAT registration number – if you’re VAT registered
If you’re a sole trader and already have a UTR, then you can register online using your Government Gateway user ID and password you would’ve received when registering for self-assessment.
If, however, you don’t have a UTR, then you’ll need to register as a new business for self-assessment and choose the ‘working as a subcontractor’ option. You’ll then be registered for both self-assessment and CIS.
If you are another type of business then you’ll need to fill out an online form for limited companies or partnerships (both can be found on the GOV.UK website).
There are certain situations where you might be exempt from the scheme and therefore wouldn’t need to register for CIS.
Examples of this are if:
- Your work is paid by a charity or trust, a governing body or head teacher of a maintained school (on behalf of the local education authority), or on the subcontractor’s own property and it’s worth less than £1,000 (excluding materials).
- You carry out certain construction work, such as carpet fitting, delivering materials and architecture and surveying.
Read our How do I register for the Construction Industry Scheme as a contractor? page for further information.
We hope you found this page useful. If you have any further questions on CIS or anything else, our team of experts are available to answer any queries, so give us a call on 01442 795 100 or email firstname.lastname@example.org.