Construction Industry Scheme (CIS)
Who is covered by CIS
The Construction Industry Scheme (CIS) covers most construction work to buildings, including site preparation, decorating and refurbishment.
Mainstream contractors
If your business is construction and you pay subcontractors for construction work, you’re a ‘mainstream’ contractor. This applies if you’re a:
- builder
- labour agency
- gangmaster (or gang leader)
- property developer
Deemed contractors
You count as a ‘deemed’ contractor if your business does not do construction work but you spend an average of more than £1 million a year on construction in any 3-year period. This could apply to:
- housing association or arm’s length management organisations (ALMOs)
- local authorities
- government departments
Exceptions for contractors
CIS does not apply if your work is:
- paid for by a charity or trust
- paid for by a governing body or head teacher of a maintained school on behalf of the local education authority
- on the subcontractor’s own property and worth less than £1,000 excluding materials – you must call the CIS helpline to get an exemption
CIS also does not apply if you’re a deemed contractor paying for:
- work on property (that is not for sale or rent) for your own business use
- a construction contract worth less than £1,000 excluding materials – you must call the CIS helpline to get an exemption
Construction work not covered by CIS
There are also certain jobs that are exempt from the scheme, including:
- architecture and surveying
- scaffolding hire (with no labour)
- carpet fitting
- delivering materials
- work on construction sites that is clearly not construction, for example running a canteen or site facilities
Verify subcontractors
Before you can pay a new subcontractor, you’ll need to ‘verify’ them with HM Revenue and Customs (HMRC).
HMRC will tell you:
- whether they’re registered for the Construction Industry Scheme (CIS)
- what rate of deduction to use or if you can pay them without making deductions
You must also verify subcontractors you’ve used before if you have not included them on a CIS return in the current or last 2 tax years.
How to verify
You can verify subcontractors using:
If you need to verify more than 50 subcontractors you’ll need to use commercial CIS software.
What you’ll need
Make sure you have:
- your Unique Taxpayer Reference (UTR)
- the reference number for your HMRC accounts office
- your HMRC employer reference
You’ll also need your subcontractor’s:
- UTR
- National Insurance number if they’re a sole trader – you cannot verify temporary numbers, which start with ‘TN’ or 2 digits
- company name, company UTR and registration number if they’re a limited company
- nominated partner details, trading name and partnership UTR if they’re a partnership
Make deductions and pay subcontractors
When you pay a subcontractor, you usually make some deductions from their payments.
HM Revenue and Customs (HMRC) will tell you how much to deduct from a subcontractor’s payments when you verify them.
The Construction Industry Scheme (CIS) deduction rates are:
- 20% for registered subcontractors
- 30% for unregistered subcontractors
- 0% if the subcontractor has ‘gross payment’ status – for example they do not have deductions made
You must pay these deductions to HMRC – they count as advance payments towards the subcontractor’s tax and National Insurance bill.
How to make a CIS deduction
To make a deduction from a subcontractor’s payment, start with the total (gross) amount of the subcontractor’s invoice.
Take away the amount the subcontractor has paid for:
- VAT
- materials
- equipment which is now unusable (‘consumable stores’)
- fuel used, except for travelling
- equipment hired for this job (‘plant hire’)
- manufacturing or prefabricating materials
Finally, deduct the CIS percentage rate (as given to you by HMRC) from the amount left. You’ll be left with the net amount you need to pay the subcontractor.
Paying subcontractors
You usually pay your subcontractors directly. But you can pay them through a third party (such as a relative or debt company) if they ask you to.
If you make deductions, you must give the subcontractor a payment and deduction statement within 14 days of the end of each tax month.
Example: If the tax month was 6 May to 5 June, you must give the statement by 19 June.
If you’re not making payments
If you know you’re not going to make any payments to subcontractors for up to 6 months, you can ask for your scheme to be made ‘inactive’. HMRC will not send you any returns for that period.
You must file a return when you start paying subcontractors again.
Pay deductions to HMRC
You must pay HM Revenue and Customs (HMRC) any deductions you’ve made.
HMRC will set up a Construction Industry Scheme (CIS) payment scheme for you when you register as a contractor.
If you already have employees, HMRC will change your existing PAYE Scheme to a PAYE/CIS scheme. You should make one payment each month or quarter to cover your PAYE tax, National Insurance and CIS deductions.
When and how to pay
Pay HMRC every month by the 22nd (or the 19th if you’re paying by post). You may be charged interest and penalties if you pay late.
Pay CIS deductions to HMRC in the same way as PAYE and National Insurance payments.
File your monthly returns
You must tell HM Revenue and Customs (HMRC) each month about payments you’ve made to subcontractors through your monthly return.
You can file returns by using:
On your return, you must declare that the subcontractors listed are not employees.
You could get a penalty of up to £3,000 if you give the wrong employment status for a subcontractor on your monthly return.
You do not have to file a return for the months when you made no payments to subcontractors, but you must tell HMRC that no return is due.
Using commercial CIS software
Your return must not include any negative values if you’re using commercial CIS software.
If any entries come to less than 0, you should put ‘0’ instead.
HMRC might ask you later to give details of any entries you’ve replaced.
Deadlines
Send your monthly returns to HMRC by the 19th of every month following the last tax month.
Example: If you’re making a return for the tax month of 6 May to 5 June, it must reach HMRC by 19 June.
Penalties for late returns
You’ll get a penalty if you miss the deadline for filing returns.
The penalty will be cancelled if you let HMRC know that you did not pay any subcontractors that month.
How late the return is | Penalty |
1 day late | £100 |
2 months late | £200 |
6 months late | £300 or 5% of the CIS deductions on the return, whichever is higher |
12 months late | £300 or 5% of the CIS deductions on the return, whichever is higher |
For returns later than this, you may be given an additional penalty of up to £3,000 or 100% of the CIS deductions on the return, whichever is higher.
Pay your late filing penalty.
If you disagree with a penalty
You can appeal within 30 days of the date on the penalty notice:
- through HMRC’s online service
- by writing to HMRC – quote your Unique Taxpayer Reference (UTR) and the payment reference shown on the notice
Correcting or changing returns
Use the HMRC CIS online service to change or correct something on your return.
Call the CIS helpline if you need any help with this.