What Is CIS (Construction Industry Scheme)?
If you are self-employed in the UK building or construction industry, then you are required to comply with HMRC’s tax rules and regulations, otherwise known as the CIS (Construction Industry Scheme). In most cases, a CIS umbrella company will be used as it is an easier process for contractors and subcontractors.
CIS is a national tax-deduction scheme for British contractors and sub-contractors, created to minimise and reduce tax evasion amongst a large number of mobile, self-employed workers in the construction industry. The scheme falls under the jurisdiction of Her Majesty’s Revenue and Customs (HMRC).
CIS rules apply to all payments made by a contractor to a subcontractor under a construction contract, allowing subcontractors to make regular contributions towards their national insurance and tax obligations.
Under the scheme, contractors deduct money from a subcontractor’s wage payment and pass it onto HMRC.
Contractors must register for the CIS. As a subcontractor, you do not have to register, but deductions are taken from your payments at a higher rate if you are not registered.
Failure to comply with CIS may result in expensive penalties.
What Is the Definition of a Contractor?
CIS has specific definitions when it comes to contractors or subcontractors, so it is essential to know these definitions and understand them.
A contractor would be a business entity that pays subcontractors for construction work.
Examples of contractors would be:
- Construction companies,
- Building firms,
- Government departments,
- Property developers,
- Housing associations,
- Local authorities and
- Many other businesses.
A registered CIS contractor will:
- Pay subcontractors for construction work, or
- Have a business that does not do construction work but spends an average of more than £1 million a year on construction in any three years.
What Is the Definition of a Subcontractor?
A subcontractor is a business or person that is paid to carry out construction work for a contractor.
Before a contractor can pay a subcontractor, the contractor may need to verify the subcontractor with HMRC. During the verification process, HMRC will let the contractor know if payments made to you can be made without deductions or if a certain rate of deduction is applied every time you are paid.
How Much Tax Must Be Paid Under CIS?
There are three rates of tax deductions that a contractor will make when paying a subcontractor. HMRC will let the contractor know the rate of tax to apply to your pay during the verification process.
The tax deduction rates are:
- 20% for registered subcontractors.
- 30% for unregistered subcontractors.
- 0% if the subcontractor has a ‘gross payment’ status which means deductions do not have to be made.
What Type of Work Is Covered by CIS?
CIS would cover most construction work for permanent or temporary buildings and civil engineering work based in the UK and its territorial waters.
CIS construction work includes:
- Preparing the worksite, e.g. laying foundations and providing access works
- Building work.
- Alterations, repairs and decorating.
- Installing systems for heating, lighting, power, water, and ventilation.
- Cleaning the inside of buildings after construction work.
Are There Any Exceptions to Work Covered by CIS?
If you are a subcontractor doing the following jobs, you will be exempt from registering for CIS, this includes:
- Scaffolding hire (with no labour).
- Carpet fitting.
- Making materials used in construction, e.g. plant and machinery.
- Delivering construction materials.
- Doing non-construction work on a construction site, e.g. running a canteen, or providing site facilities.
Why Should I Use Unified Payroll CIS Umbrella?
Unified Payroll is an expert CIS umbrella company with years of experience within the construction industry. Our payroll solution is easy, fast, and compliant so you always get paid on time while we support you every step of the way. We handle all your payroll, so you, your agency and end client can concentrate on other things.
Subcontractors use our CIS payroll service because we are:
- FCSA and Professional Passport accredited, so everything we do is compliant.
- An expert CIS umbrella payroll service with a low, competitive margin.
- A dedicated umbrella company who are here to help with all questions.
- A fully managed payroll service taking care of all the paperwork so you can complete your assignment with no worries.
- A nationwide CIS umbrella company, so no matter where you are based, our payroll service will make your life easier.
- Straightforward with a quick enrolment process so you can join us without hassle.
- Experienced in answering complicated questions around CIS.
- Constantly training staff, so we stay up to date with all the latest legal developments.
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