CIS tax is paid by building contractors
In this article we’ll explain what CIS tax is and introduce you to the basics.
CIS is paid at different rates depending on whether you are registered under the scheme and there are a lot of rules and conditions which affect how it works.
We can only cover the essentials here, but if you want to understand more feel free to contact us for a no obligation chat.
Too busy? Here’s CIS Tax in 30 seconds.
- CIS is paid by people in the construction industry
- Contractors deduct it from a sub-contractors pay
- It counts towards sub-contractors NI and Tax
- You pay less if you’re CIS registered
- You can opt out and pay your own Tax and NI
- Both contractors and subcontractors should register, even if opting out
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.
Who counts as a contractor or subcontractor
Register as a contractor if either:
- you pay subcontractors for construction work
- your business doesn’t do construction work but you spend an average of more than £1 million a year on construction in any 3-year period
Register as a subcontractor if you do construction work for a contractor.
You must register as both if you fall under both categories.
Work covered by CIS
CIS covers most construction work to buildings, including site preparation, decorating and refurbishment.
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, eg running a canteen or site facilities
What you must do
- You must register for CIS before you take on your first subcontractor.
- You must check if you should employ the person instead of subcontracting the work. You may get a penalty if they should be an employee instead.
- Check with HM Revenue and Customs (HMRC) that your subcontractors are registered with CIS.
- When you pay subcontractors, you’ll usually need to make deductions from their payments and pay the money to HMRC. Deductions count as advance payments towards the subcontractor’s tax and National Insurance bill.
- You’ll need to file monthly returns and keep full CIS records – you may get a penalty if you don’t.
- You must let HMRC know about any changes to your business.
- the owner of a limited company
- a partner in a partnership or trust
Under CIS, a contractor must deduct 20% from your payments and pass it to HM Revenue and Customs (HMRC). These deductions count as advance payments towards your tax and National Insurance bill. If you don’t register for the scheme, contractors must deduct 30% from your payments instead.
If you don’t want deductions made
If you don’t want deductions to be made in advance by contractors, you can apply for ‘gross payment status’. You can do this when you register for CIS.
Still have questions? Ready to deal with your CIS tax?
Even this brief look shows that CIS can be a complicated task. Hammond take the headache away by dealing with the whole package, registration, paying the right people the right amount and submitting accounts to HMRC.