What Is CIS and What Does It Cover?
If you’re a recruiter who places construction workers, it is highly likely that you are aware of the Construction Industry Scheme (CIS). While most people in construction recruitment have heard of CIS, there’s still a lot of confusion over how it actually works and how best to go about selecting a CIS umbrella payroll company.
First, though, let’s go back to basics.
CIS is a government scheme created to stop tax evasion whenever contractors pay subcontractors in the UK construction industry. CIS covers most construction work in the UK and includes UK territorial waters up to the 12-mile limit.
Under CIS rules, contractors within the construction industry must make tax and National Insurance deductions from payments to subcontractors and pass this onto HMRC. These subcontractor payment deductions must be made every time the contractor pays the subcontractor. These deductions count as advance payments towards the subcontractor’s tax and national insurance. With contractors following CIS, it ensures that no tax avoidance takes place within the construction industry.
CIS applies to construction work involving:
- Permanent buildings,
- Temporary structures, and
- Civil engineering work, e.g. roads and bridges.
Specific job roles covered by CIS include:
- Site preparations.
- Building work,
- Installation of heating, lighting, power, water, and ventilation systems.
- Cleaning the inside of buildings after construction work.
Are There Any Exceptions to Jobs Covered by CIS?
The following construction job roles are exempt from CIS:
- Scaffolding hire with no labour,
- Carpet fitting,
- Making materials used in construction,
- Delivering materials, and
- Non-construction jobs on construction sites, e.g. running a canteen or site facilities.
Who Is a Contractor?
A contractor is a business or business entity that pays subcontractors for construction work. For CIS agencies, contractors would be the end clients paying their candidates to complete construction work assignments.
Contractors under CIS include:
- Construction companies,
- Building firms,
- Government departments,
- Local authorities, and
- Many other businesses.
Non-construction businesses with an average annual expenditure of £1 million or more on construction operations over a period of 3 years, would also be classified as contractors under CIS.
Contractors operating under CIS must:
- Register with HMRC for CIS before they can act as a contractor and pay subcontractors.
- Check if they should employ the person instead of subcontracting the work.
- Go through the HMRC verification process to check if a subcontractor is registered with CIS.
- Make deductions from subcontractor payments and pay this to HMRC every time they pay the subcontractor.
- File monthly returns and keep full CIS records.
- Let HMRC know about any changes to their business, e.g. changing business address, changing the business structure or taking on another contractor business.
Please note - Contractors not following these CIS rules may face penalties from HMRC.
Who Is a Subcontractor?
A subcontractor is an entity or business that is paid by a contractor to carry out construction work. For CIS recruitment agencies subcontractors would be your candidates completing construction assignments for end clients in the construction industry.
Unlike contractors, subcontractors do not need to register for CIS, but they will have deductions taken at a higher rate if they are not registered.
How Much Tax Has to Be Paid Under CIS?
Tax deductions must be made at source on any contractor payments made to subcontractors at one of the three tax rates listed below.
- 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.
HMRC will always tell contractors the rate of tax deduction they must apply to the subcontractor’s payments during the verification process.
Are Agencies Contractors or Subcontractors?
CIS recruitment agencies would be classified as both contractors and subcontractors under CIS. Agencies pay subcontractors for construction work completed but are also paid by end clients who are contractors in the construction industry. Recruitment agencies must register for both contractor and subcontractor under CIS. Once registered agencies must follow contractor rules when acting as a contractor and subcontractor rules when acting as a subcontractor.
Why Do Agencies Need a CIS Umbrella Payroll Service?
Processing payroll for CIS subcontractors is time-consuming and complicated but an easy to use CIS umbrella payroll service provides a perfect solution for agencies. We offer a compliant CIS umbrella payroll service that takes away the burden of paying subcontractors.
As an experienced umbrella company with gross payment status, we employ subcontractors and pay them in line with CIS, so agencies do not have to worry. Our CIS umbrella payroll service takes on the job of processing subcontractor payroll, making tax and National Insurance deductions and paying this directly to HMRC. Unified Payroll handling all CIS payroll gives agencies the time to concentrate solely on placing candidates.
The image below explains our CIS umbrella payroll service:
Why Agencies Use Our CIS Umbrella Payroll Service
Recruitment agencies use our CIS umbrella payroll service because we:
- Offer a nationwide CIS umbrella payroll solution partnering with agencies from anywhere in the UK.
- Our processes follow all CIS rules.
- Are an expert CIS umbrella company with specialist CIS experience, so you are always in good hands.
- Are registered to process all CIS payments and can provide proof of our gross payment status.
- Answer all CIS queries in an easy to understand way, so you and your candidates always have expert support.
- Run same day faster payments, so subcontractors are paid on time without any delay.
- Have an online portal for the subcontractors to see their payslip and tax deductions clearly.
- Offer a straightforward and quick enrolment process making life easier for agencies and candidates.
- Constantly training staff, so we stay up to date with all the latest legal developments.
If you have any questions about CIS or our umbrella solution you can contact our expert sales team.
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