Contractors and subcontractors operating in the construction industry are required to register for the Construction Industry Scheme (CIS) with HMRC. Failure to register can result in penalties for contractors, or a higher deduction from sub-contractor’s pay.
The construction industry scheme (CIS) is extensive and covers most work to either a permanent or temporary building/structure or civil engineering works such as roads and bridges.
Registered contractors must:
• Make deductions from payments to their subcontractors
• Submit monthly reports to HMRC detailing the amounts deducted and paid (CIS300)
• Pass these deductions on to HMRC on behalf of their subcontractors
These deductions count as advance payments towards the subcontractor’s tax and/or National Insurance contributions when completing their own personal tax returns. During the sub-contractor’s personal tax return submission, they may be able to claim back excess CIS deductions resulting in an income tax refund.
Deductions are made at:
• 20% if subcontractor is registered for CIS
• 30% if subcontractor is unregistered
Subcontractors are not required to register for CIS but it is beneficial to register in order to avoid deductions being taken from pay at a higher rate.