What is the Construction Industry Scheme (CIS)?
Under CIS, contractors must deduct tax from payments they make to subcontractors. These rules exist to prevent fraud and ensure HMRC receives tax from construction-related work.
Construction Work Covered By CIS Includes:
- Preparing the site – for example, laying foundations and providing access works
- Demolition and dismantling
- Building work
- Alterations, repairs and decorating
- Installing systems for heating, lighting, power, water and ventilation
- Cleaning the inside of buildings after construction work
Important note: CIS does not apply to work for private households – only when paid by a contractor.
Exceptions
You do not have to register if you only do certain jobs, including:
- Architecture and surveying
- Scaffolding hire (with no labour)
- Carpet fitting
- Making materials used in construction including plant and machinery
- Delivering materials
- Work on construction sites that’s clearly not construction – for example, running a canteen or site facilities
How The CIS System Works
Generally CIS tax is applied to labour rather than materials although there are a few minor exceptions to be aware of.
Contractors must decide for each job whether you’re self-employed or employed for every contract. If self-employed, your payments fall under one of three tax treatments.
Gross Payment Status
No deduction where you are registered for gross payment status.
Standard Rate Deduction
Where you are registered as a subcontractor.
Higher Rate Deduction
Where you are NOT registered as a subcontractor.
The amount is paid to HMRC by the contractor on account of your tax liability. It is not your actual liability, just a payment on account, which is often an overpayment when all deductions possible are claimed and so results in a refund at the end of the tax year.
