What is the Construction Industry Scheme (CIS)?
If you work in construction in the UK, you have probably heard of CIS. But what actually is it, who does it apply to, and what do you need to do? This guide explains the Construction Industry Scheme in plain English, without the jargon.
What is CIS?
The Construction Industry Scheme is a tax deduction system run by HMRC. It applies to payments made by contractors to subcontractors for construction work.
Under CIS, contractors must deduct tax from payments to subcontractors and pass those deductions to HMRC. The subcontractor then gets credit for those deductions against their own tax bill.
CIS covers most construction work including:
- Building and renovation
- Decorating and painting
- Plumbing, heating and electrical work
- Roofing and scaffolding
- Civil engineering
- Demolition and site preparation
It does not cover architecture, surveying or delivery of materials if that is all you do.
Who needs to register?
There are two sides to CIS: contractors and subcontractors.
Contractors are businesses that pay subcontractors for construction work. If you hire subcontractors in construction, you must register as a CIS contractor with HMRC. This applies even if your main business is not construction. For example, a property developer who hires a plumber is a contractor under CIS.
Subcontractors are the individuals or businesses that carry out the construction work. Subcontractors do not have to register, but if they do not, they will be taxed at the higher unregistered rate of 30 percent instead of the standard 20 percent.
How do CIS deductions work?
When a contractor pays a subcontractor for work, they must:
- Verify the subcontractor with HMRC to confirm their registration status and tax rate
- Make the correct deduction from the payment (20 percent for registered subcontractors, 30 percent for unregistered)
- Pay the net amount to the subcontractor
- Submit a monthly CIS return to HMRC by the 19th of each month
- Provide the subcontractor with a written statement showing the deduction
The deductions are not an extra cost. They are advance payments of the subcontractor’s tax liability. The subcontractor can offset them against their own tax bill or claim a refund if they have overpaid.
What are the deadlines?
CIS returns must be submitted to HMRC by the 19th of every month. The return covers payments made in the previous tax month (6th to 5th).
Even if you have not paid any subcontractors in a given month, you must still submit a nil return. Missing the deadline results in an automatic penalty.
What are the penalties for getting CIS wrong?
HMRC takes CIS compliance seriously. The penalties include:
- 100 pounds for each month a return is late (up to 12 months)
- Additional penalties of up to 300 pounds or 5 percent of the CIS deductions after 12 months
- Interest charges on any late payments
- Incorrect deductions can trigger an HMRC investigation
If you are a contractor with multiple subcontractors and you miss several months of returns, the penalties add up very quickly.
Do you need help with CIS?
CIS is not complicated once it is set up properly, but it is time-consuming and the penalties for mistakes are harsh. Most contractors in Essex hand their CIS to a bookkeeper so they can stay on site and focus on the work.
At Bentley Admin, we handle CIS returns for contractors across Essex and into Suffolk. We verify your subcontractors, calculate the deductions, prepare the returns and submit them to HMRC by the 19th every month. We work with contractors in Colchester, Ipswich, Harwich and across the surrounding area.
If you also need general bookkeeping or payroll, we handle those too. Most of our construction clients use all three services.
Get a free consultation or call us on 01206 252221. We will explain exactly how it works and what it will cost.
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