If you work in the construction industry, there’s a good chance you’ve heard of the Construction Industry Scheme (CIS). Whether you’re a contractor, a subcontractor, or both, understanding how CIS works is essential for staying compliant and avoiding unexpected tax bills.
Below is a straightforward overview of what CIS is, who it applies to, and how to stay on top of your obligations.
The Construction Industry Scheme is a set of HMRC rules regulating how contractors pay subcontractors for construction work. Under CIS, contractors must deduct a percentage from subcontractors’ payments and pass it on to HMRC. These deductions act as advance payments towards the subcontractor’s tax and National Insurance.
CIS applies to:
Businesses or individuals who pay subcontractors for construction work. This includes property developers and some businesses whose main trade isn’t construction but who spend significant amounts on building work (known as “deemed contractors”).
Individuals, partnerships, or companies who are paid to carry out construction work for contractors.
Many businesses in the sector fall into both categories.
CIS covers most types of construction activity, including:
Some work is not covered (for example, architecture, surveying, or materials supplied without labour), so it’s important to check the individual situation.
You should register for CIS before starting work. Registered subcontractors are deducted at 20%, while those unregistered are deducted at 30%, which can significantly reduce cashflow.
You must register with HMRC before taking on subcontractors.
Contractors have several ongoing responsibilities:
Before paying a subcontractor, contractors must confirm their status with HMRC to determine the correct deduction rate.
Deductions (20% or 30% unless paid gross) must be taken from labour costs and paid to HMRC.
Every month, contractors must file a CIS return showing payments made and deductions taken. Even if no payments were made, a nil return may still be required.
Subcontractors should receive monthly statements showing payments and deductions made. They use these records for their tax returns.
Some subcontractors can apply to be paid gross — meaning no deductions are taken.
To qualify, HMRC looks at:
GPS can help cashflow, but compliance must be maintained to keep it.
CIS deductions are treated as tax already paid. How you claim depends on your business structure:
Keeping accurate records all year makes this process far smoother.
CIS can be complex, and mistakes can lead to penalties, cashflow issues, or disputes between contractors and subcontractors.
Common pitfalls include:
Having professional support helps keep everything on track.
Whether you’re a contractor needing support with monthly returns or a subcontractor wanting to make sure your deductions are correct, JB Accounts can help you stay compliant and avoid surprises. Get in touch today to find out more
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