Contractors participating in the CIS are required to deduct money from their subcontractors’ pay, in order to cover their tax and NICs. If you are a contractor in the construction industry then you must be registered. It is also worth noting that if you are not in the construction industry but your business spends an average of more than £1 million per year on construction in any three-year period, then you must also register for the scheme – companies that this would typically affect may be property developers or housing associations. Subcontractors are not required to register but we recommend that they do. 

 

If the subcontractor is registered for CIS then the deduction stands at 20% - and if the subcontractor is not registered under the scheme then it increases to 30% - so it pays to be registered! These deductions are then paid by the contractor to HMRC as an advance payment towards the subcontractors’ tax liabilities. 

 

If your business is based outside the UK but you do construction work as a contractor or subcontractor in the UK, then you will also need to be registered. The gov.uk website has a fully comprehensive document about the scheme, which you can access here. 

Both limited company directors and sole traders can participate in the CIS, however the rules are slightly different in each situation. For limited companies, any CIS deductions made by a contractor from income due to the company can be offset against the company’s corporation tax. Alternatively, HMRC can refund it to the subcontractor at the end of the tax year. Sole traders are in a similar position however their CIS deductions are offset against their income tax, or personal tax liability, and will be noted in the self-assessment. 

If you are a subcontractor and you operate via a limited company or as a sole trader, the contractor who has engaged you in the work will pay you or your limited company after they have deducted the 20% or 30% (as applicable) for CIS payments. 

 

The main contractor will be filing a monthly report to HMRC showing the deductions made from all of their subcontractors, including your limited company or you personally if you are a sole trader. 

 

If you are a subcontractor operating via a limited company, then your company will include the CIS amount deducted by the contractor through an Employment Payment Summary (EPS). Your limited company must submit an EPS to HMRC throughout the tax year as part of its PAYE arrangements. HMRC then calculates your company’s reduced corporation tax liability by calculating the total amount of CIS deductions made by the contractor. Any leftover CIS credit will be refunded back to your company. 

 

If you are a sole trader then you should include the CIS amount that the contractor you have subcontracted under has deducted from your payments throughout the year on your annual self-assessment. This will reduce your tax bill as appropriate and, as with limited companies, any CIS credit left over will be refunded to you directly. 

The contractor who is paying you will be making the necessary CIS deductions from its payments to your limited company, and your limited company will be making the necessary CIS deductions from the payments it makes to its own subcontractors. 

If you work in any part of the construction industry and you have any doubt about whether you need to be registered for the scheme, the gov.uk website has more details in a fully comprehensive guide which you can find here. 

 

If you’d like tailored advice on your individual situation then please do not hesitate to get in touch by booking a call or sending us an email. We’d love to help – that’s what we’re here for!