If you ask yourself what the Construction Industry Scheme (CIS) is, then you must be probably involved in a contract of services related to construction work. In this article, we will provide a few pieces of information that will help you understand better how the Construction Industry Scheme is working and how it can affect your business.
Let’s begin by understanding that CIS is a tax scheme that refers to tax being deducted at source from all amounts which relate to construction work.
Find here what is covered under the CIS scheme and who is exempt from it
Obviously, as the name implies, the Construction Industry Scheme includes under its coverage area the usual construction works. We are talking here about decoration, repairs, site preparation, demolition, and also related works that have to do with this industry. Absolutely all business-to-business payments are covered. You need to understand that the CIS regulation implies that both collaborators, those who make payments and those who receive payments, must be registered for the Construction scheme.
Even if you are a sole trader and you will be hiring subcontractors to do work (and none of this work is for another contractor), you will need to run a CIS payroll. And will be your responsibility to issue a monthly report to the authorities (for HMRC) and make all necessary payments.
Nota Bene: Unless there is a service contract with a private householder, the installation of solar panels for the supply of green electricity will be a construction operation that will be subject to the Construction scheme.
Trades excluded from CIS
First of all, it is important to know that the Construction Industry Scheme does not apply to payments made to employees. And this is because these payments are already covered by the PAYE system of deduction at source (Pay As You Earn) or the NIC system. However, the CIS applies to subcontractors and self-employed natural persons.
If you want to check if your work does not fit into the CIS scheme, here are some concrete examples:
- topography works
- architectural works
- scaffolding rental but no labor
- installation of carpets
- delivery of materials to the site
- canteen or on-site facilities unrelated to construction.
Do you have to register for CIS?
Yes, before hiring your first subcontractor you need to register your business for CIS. But keep in mind that you need to check first if you should hire that person instead of outsourcing the work. If you should have been hired him, you could receive a penalty for this.
Always check with HMRC to see if your subcontractors are registered with the CIS.
Do subcontractors have to register for CIS?
Contractors deduct money from subcontractor’s payments and then pass it to HMRC. Subcontractors are not required to register for the CIS. But the deduction rate from their payments will be at a higher rate if they do not, meaning a tax deduction rate of 30% instead of 20%.
Keep in mind that if you fail to register for CIS, tax returns will still need to be completed. And failure to submit tax returns can lead to penalties and estimated tax bills.
How does VAT work in construction?
If you are wondering how VAT works in the construction industry, then find out that in the design or construction industry most supplies are ‘standard rated’. And therefore VAT is added to the value of the goods at the applicable VAT rate.
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