What Is CIS (Construction Industry Scheme)? A Tax Guide
If you are self-employed in the construction business, you should pay tax under the Construction Industry Scheme. It is a self-employment tax scheme that is specifically for construction industry professionals. So you should familiarise yourself with it as you are hired for a new business.
CIS or the Construction Industry Scheme refers to a government scheme that allows contractors to pay directly towards the tax of subcontractors. Under CIS, contractors can deduct tax funds from the subcontractors pay to send to HMRC.
Note: It is important to note that cis can also be an abbreviation of cisgender. This is to denote clearer terms in gender identity. Cisgender people identify with their physical bodies. Their gender expression fits with the gender assigned on their birth certificate. This is congruent gender. Transgender people do not identify with their gender assigned at birth. You will see the term “cis” appear to refer to cis people or cishet people. This is not what we are discussing today.
Here’s What We’ll Cover:
The Construction Industry Scheme (CIS) vs Self Employment Tax
For regular self-employed individuals, you’ll be paid the gross amount of income you’re owed by any contractor or client. It’s then your responsibility to declare your earnings for HMRC to calculate your contributions.
The beauty of CIS is that your contractor can directly pay towards your tax and National Insurance by deducting it from your pay. This means that the final amount you get is all yours!
To qualify, however, there are a few considerations:
- You actually are self-employed to qualify
Not everyone in the construction industry is self-employed. If you have a traditional working contract, your National Insurance contributions and tax will be dealt with on your P45 as normal.
- The work included in the Construction Industry Scheme is more diverse than you think
It’s not just scaffolding and building work that qualifies. Demolition, repairs service and decorating work can also apply.
- You can only access this tax scheme through contractors
If a homeowner hires you to do construction work on their premises, they are obligated to pay you your gross total invoice. Only professional contractors that have registered for the scheme can pay you this way.
- The amount of tax the contractor deducts from your pay depends on you
If you register under CIS, your tax payments are 20%. If you’re not registered, your tax payments are 30%. You don’t need to register as a subcontractor under CIS. But your contractor does need to register. If you both hire subcontractors and work as one, you need to register as both.
How to Register Under the Construction Industry Scheme
Every contractor must register under CIS by law. This is a requirement from the HMRC. Non-contractors can register too if they spend more than £3million on construction within a 12 month period.
Here is how to register as a contractor under CIS step-by-step:
- Go to https://www.gov.uk/register-employer to register as an employer
- Follow the online process to register if you are a limited company with 1-9 directors. If not, contact HMRC for guidance
- Set up your PAYE registrations
- Check what benefits you must offer your employees
- Get employer’s liability insurance
- Once complete, the HMRC will send you a letter. This will give you the information you need to start hiring subcontractors under CIS.
You don’t need to register as a subcontractor. It does have a negative impact on your overall tax amount though. So it’s probably worth doing.
Here is how to register as a subcontractor under CIS step-by-step:
- Register as self-employed (sole trader)
- You will then need the following to complete your registration:
- your legal business/trading name
- your National Insurance Number
- the unique taxpayer reference number (UTR) for your business
- your VAT registration number (if you’re VAT registered)
- If you don’t have a UTR, register for self-assessment first.
- Complete your CIS subcontractor registration online using this website.
It’s important to note that as a construction professional, you’ll likely use CIS and self-assessment in tandem. If a registered contractor works with you, then they’ll pay you under CIS. If you work for average people, you’ll need your self-assessment details to declare those earnings. You can think of CIS as a subsect of self-employment. Not “instead of” - “as well as”.
The Construction Industry Scheme is an advantageous tax scheme that is worth signing up for. As a contractor, it’s a legal obligation. But even for subcontractors, that 10% tax discount is more than enough incentive!
For more guides on UK taxes like this one, head to our resource hub.