Is the work that your business does related to the construction industry?
If so, you may need to register on the Construction Industry Scheme (CIS).
Under the scheme, qualifying contractors are required to make direct deductions from any payments relating to labour (not to goods or materials) they make to subcontractors, and pass them on to HMRC. These deductions count as advance payments towards the subcontractor’s tax and National Insurance. Contractors must register for CIS: Subcontractors don’t have to, but if they don’t, HMRC will calculate deductions from their payments at a higher rate.
The CIS scheme covers a very broad range of trades and professions within the construction industry. This, combined with the fact that the status of a business can change from project to project – fluctuating between being a contractor, a subcontractor – or even both at the same time, can sometimes lead to confusion about exactly who needs to register, and in what capacity.
The scheme can apply to sole traders, partnerships and limited companies, and in the course of our work, we’ve come across a number of companies carrying on with their business, unaware that they needed to be CIS registered.
We thought we’d try and clarify things, and also take a look at the obligations of contractors and subcontractors under the scheme:
Who needs to register for CIS?
The scheme covers most construction work to buildings, including site preparation, decorating and refurbishment, and it’s these areas in particular that can catch out businesses involved in property maintenance. Trading without registering leaves a business exposed to the risk of fines and penalties from HMRC.
What work is excluded from CIS?
There are some exceptions under the scheme. You don’t have to register if you only do certain jobs, including:
What is a contractor & what must they do?
If you pay subcontractors for construction work you must register as a contractor and follow these rules:
What is a subcontractor & what must they do?
If you work for a contractor, you must register for CIS. Under the scheme, the contractor you are working for will generally deduct 20% from the labour portion on your invoice and pass it to HMRC. These deductions count as advance payments towards your tax and National Insurance bill.
If you don’t register with the scheme, contractors must deduct 30% from your payments instead. It is possible to be registered so that you are paid without deductions, but your tax history must be good and up to date.
It can seem like a confusing area, and if you’re still unsure whether or not you need to register for the CIS scheme, the simplest thing to do is to pick up the phone and have a chat with us. Tell us about the kind of work you’re undertaking and we can advise if you need to register as a contractor, subcontractor, or both – and if you do, we can guide you through the registration process and help you fulfil your obligations through a range of standard monthly support services. Call us now!