Who the Construction Industry Scheme applies to
The Construction Industry Scheme, or CIS, is HMRC's system for collecting tax from people working in building. A contractor who pays a subcontractor for construction work takes tax off the labour part of the bill and passes it to HMRC. That tax then counts towards the subcontractor's own tax bill.
You are a contractor if your business pays subcontractors for building work, whether you are a sole trader, a partnership or a limited company. A business that does not do construction itself can also become a contractor once it has spent more than £3 million on construction in the 12 months since its first payment. Homeowners paying for work on their own home are not contractors.
Contractors must register for CIS before taking on their first subcontractor. With large schemes such as Watford Riverwell bringing new homes and roads to the area, plenty of local firms move from working alone to taking on a few subcontractors, and that is the moment to get set up.
The monthly CIS timetable
CIS runs on tax months that start on the 6th and end on the 5th of the next month. For each tax month the contractor files a return listing every subcontractor paid and the tax deducted. The return is due by the 19th. The deductions must reach HMRC by the 22nd if you pay electronically, or by the 19th if you pay by post. The two dates are easy to mix up.
Each subcontractor needs a payment and deduction statement within 14 days of the end of the tax month. If you paid nobody in a month, you still need to file a nil return or tell HMRC you have stopped using subcontractors for now.
What is included
- CIS registration for contractors
- Verifying new subcontractors with HMRC
- Monthly CIS returns and nil returns
- Payment and deduction statements
- Reminders of payment dates
- CIS refunds through self assessment
- Offsetting CIS against company PAYE
- Gross payment status applications
- Domestic reverse charge VAT advice
Checking subcontractors and the right rate
Before paying a new subcontractor you must verify them with HMRC using their name, their UTR, which is the ten digit tax reference, and their National Insurance number or company number. HMRC then tells you which rate to use. You do not need to verify again if you have paid that person in the current tax year or the two before it.
- 20% for subcontractors registered for CIS
- 30% for subcontractors who are not registered or cannot be matched
- 0% for those with gross payment status
Working with a CIS accountant in Watford
Deductions are worked out on labour only. Materials the subcontractor paid for, VAT and certain other costs are taken out first. If a contractor gets this wrong and deducts too little, HMRC can ask the contractor to pay the shortfall, which is why care at invoice stage matters.
As your CIS accountant, each month we collect your invoices, verify new subcontractors, work out the deductions, file the return and send out the statements. You get a reminder of what to pay and when. Builders from Garston, Hemel Hempstead or Borehamwood are often out on sites across Hertfordshire all day, so we do most of it by email and video calls, with a meeting at our Watford office when needed.
Getting deductions back as a subcontractor
If you are a sole trader, the CIS tax taken from your pay is set against your income tax and National Insurance on your self assessment return. Because 20% is often more than the tax you actually owe once expenses such as tools, van costs and materials are counted, many subcontractors get money back. Keep every statement and every receipt, and your CIS accountant can claim back what you are owed.
If you work through a limited company, the company sets the CIS deductions against the PAYE and National Insurance it owes each month. Anything left over can be reclaimed from HMRC after the end of the tax year.
Some subcontractors can apply for gross payment status, which means no tax is deducted at all. HMRC applies a business test, a turnover test and a compliance test, and a late return or late payment can lead to the status being removed.
Penalties and the VAT reverse charge
A CIS return filed one day late brings a £100 penalty. At two months late it is £200 more. At six and twelve months there are further penalties of £300 or 5% of the deductions on the return, whichever is higher, and returns over a year late can bring up to £3,000 or 100% of the deductions. If you have fallen behind, a CIS accountant can file the missing returns quickly and limit the damage.
VAT registered builders also need to know about the domestic reverse charge. Since 1/3/2021, when a VAT registered subcontractor supplies building work that is reported under CIS to a VAT registered contractor who is not the end user, the contractor accounts for the VAT instead of paying it to the subcontractor. It does not apply to work for homeowners.
Who this suits
- Builders and developers paying subcontractors
- Plumbers, electricians and other trades working under CIS
- Labourers and site workers with tax deducted
- Limited company subcontractors reclaiming deductions
- Firms behind on their monthly CIS returns
Common questions
What date do I pay CIS deductions to HMRC?
Deductions must reach HMRC by the 22nd of the month after the tax month ends if you pay electronically, or by the 19th if you pay by post. The return itself is due by the 19th either way.
Why is 30% being taken off my pay instead of 20%?
The higher rate applies when you are not registered for CIS or HMRC cannot match your details. Registering, or correcting the name and UTR your contractor holds, usually brings it down to 20% for future payments.
Do I have to register for CIS as a subcontractor?
Yes, if you work for a contractor as a sole trader, a partner or through your own limited company. Employees do not register. If you are not registered, your contractor must deduct 30% instead of 20%, so registering early keeps more money in your pocket each month.
Does CIS apply when I fit kitchens for homeowners?
No. Homeowners paying for work on their own home are not contractors under CIS, so nothing is deducted. CIS applies when you work for a builder or another business that counts as a contractor.
Should CIS be deducted from the VAT on my invoice?
No. The deduction is worked out on labour only. VAT and the cost of materials you supplied are left out before the percentage is applied.
What is the penalty for a late CIS return?
It starts at £100 for one day late, with £200 more at two months. Further penalties follow at six and twelve months, and each late return is penalised separately, so several missed months add up quickly.
My company had CIS deducted. How do I get it back?
A limited company sets CIS deductions against the PAYE and National Insurance it owes for its own payroll. If more was deducted than the company owes, the balance can be reclaimed from HMRC after the tax year ends.
I had no subcontractors over winter. Do I still file?
Yes. A return is due every month, so you either file a nil return or tell HMRC you have temporarily stopped using subcontractors. Otherwise penalties can build up even though no one was paid.