Geoffrey Caesar, Solicitor

If you are a contractor in the construction industry, you may be wondering how the Construction Industry Scheme (CIS) affects you. You may have heard of CIS, but what is it, and how do you qualify as a subcontractor under it?

CIS is a special tax regime for contractors and subcontractors in the construction sector. Under CIS, contractors deduct money from a subcontractor’s payments and pass it to HM Revenue & Customs (HMRC). The deductions count as advance payments towards the subcontractor’s PAYE and NICs.

The main benefit of being a subcontractor under CIS is that you can reduce your tax liability by deducting your payments at a lower rate than if you were not registered for the scheme. The standard deduction rate is 20%, but contractors must deduct 30% from your payments if you are not registered for CIS.

To qualify as a subcontractor under CIS, you must meet the following criteria:

• You must agree to do construction work for a contractor. It doesn’t matter how you carry out the work – you could do it yourself, get your employees to do it, use your subcontractors or make some other arrangement.
• You must do construction work that is covered by the scheme. This includes most work on buildings or structures, such as site preparation, alterations, repairs, decorating and demolition. There are some exceptions, such as architecture, surveying and carpet fitting. You can find a complete list of the types of work covered by the scheme in Appendix A of the CIS 340 guide.
• You must register for CIS with HMRC. You can do this online, by phone or by post. You must provide your legal business name, National Insurance number, unique taxpayer reference (UTR) number, and VAT registration number if you are VAT registered. You will also need to provide your business address, contact details and bank account details.

Once you are registered for CIS, you will receive a verification number from HMRC that confirms your status as a subcontractor and the rate of deduction that applies to you. You must give this number to each contractor you work for, along with your UTR number and legal business name.

You must also keep records of your payments and deductions under CIS and file monthly returns to HMRC. You can claim back any overpaid tax and NICs through your Self-assessment tax return at the end of the year.

Understanding the criteria for being a subcontractor under CIS and how they affect you as a contractor in the construction industry is essential. The scheme is designed to ensure fairness and compliance in the tax system, but it can also have significant implications for your income and expenses.

Do you need more certainty about your status or need more guidance? I can provide further information, review any documents you have received and draw up any contracts you require.