The CIS is a HMRC scheme under which if you work for a contractor in the construction industry, (so not as an employee), but for example as a self-employed individual, then the CIS rules mean that the contractor is usually obliged to withhold tax on its payments to you, at either 20% if you are ‘registered’ or 30% if you are not. Not everyone who works in the construction industry is self-employed. If you work in the construction industry, you should consider your employment status in the same way as everyone else.
The CIS covers more than what you may typically think of as building and civil engineering work, for example it includes work in demolition, site clearing, repairs and decorating, and installing power systems. Contractors have an obligation to decide if their workers are employed or self-employed. You should only pay tax under the CIS, if you are genuinely self-employed.
How do I know whether to register under the Construction Industry Scheme?
There are two components of the Construction Industry Scheme (CIS), one is being a ‘contractor’ and one being a ‘subcontractor’. If you are engaging other self-employed workers doing construction work then you are a contractor and must register under the CIS. As a low-income self-employed worker, it is more likely that you will be engaged, or taken on, by a contractor to perform some construction work. This will mean you are a subcontractor. If you are a subcontractor then you can choose whether or not to register under the CIS.
Note that registration under the CIS is in addition to registration as self-employed for Self-Assessment, not instead of registering as self-employed. This means for those new to both self-employment and the CIS, there are two separate registrations. However, both can be done at the same time.
If you decide to register for the CIS then the contractor must deduct and withhold 20% of the amount of your invoices for your work and any travel expenses (excluding any amounts you invoice for VAT and materials and tool hire, etc as you should be paid 100% of these costs without any CIS deductions withheld).
If you are a registered subcontractor and approved for gross payment status, then no deductions should be made under the CIS. Any amounts withheld by the contractor will be paid to HMRC as advance payments towards your individual income tax and National Insurance contributions (NIC) bill for the relevant tax year.
Will I get payslips?
Yes – at least one statement must be provided by the contractor each tax month and within 14 days of the end of the tax month (a tax month runs from 6th of one month to the 5th of the next). The statement must show the contractor’s name and reference, details of the payment(s) made, the cost of any materials incurred and the deduction(s) made from the payment(s). It is vital that you retain these statements (as well as details of your expenses – see below) as you will need them to do your tax return.
Many subcontractors find themselves overpaying tax and National Insurance contributions (NIC). If you are in this position then HMRC should automatically process your refund after you have completed and submitted your tax return, whether online or using a paper tax return.
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