The Construction Industry Scheme (known as CIS) is a scheme to enable HMRC to collect tax at source from self-employed Contractors and Subcontractors who work within the Construction Industry in the United Kingdom.
The new Construction Industry Scheme (CIS) was brought into UK legislation on 1st August 1999 and covers work on Construction Sites within the UK.
Most companies, partnerships, and self-employed individuals working within the Construction Industry in the UK are legally required to register for the scheme. There are few exceptions such as architecture and surveying, scaffolding hire (with no labour), carpet fitting, delivering materials, and provision of canteen and site facilities.
Individuals working within the Construction Industry directly for an Agency/Contractor and paid under PAYE do not need to register for the scheme as their tax and national insurance contributions (NI) are collected through the normal pay as you earn (PAYE) system.
The Construction Industry Scheme covers all aspects of construction work carried out in the UK, such as site preparation, alterations, dismantling, construction, repairs, decorating and demolition.
The Construction Industry Scheme is designed to ensure that Subcontractors within the Construction Industry make payments “on account” each month which go towards settling their tax and Class 4 National Insurance bill which is due at the end of the financial year.
When a Subcontractor registers for the Construction Industry Scheme (CIS) with HMRC, they will be issued with a status which will dictate the level of deduction that the Agency/Contractor must make from the payment and send to HMRC on a monthly basis.
Under the Construction Industry Scheme (CIS) there are three levels of deduction. The three levels of deduction are; gross status where no deduction is made; standard rate status where a deduction of 20% is made and sent to HMRC; and higher rate status where a deduction of 30% is made and sent to HMRC.
Each tax month (6th of the month to the 5th of the next month), the Agency/Contractor will make deductions of tax under The Construction Industry Scheme (CIS) and pay the amounts to HMRC to be held on account for the Subcontractor. The Agency/Contractor will issue a notification to the Subcontractor confirming the amounts deducted.
At the end of the tax year, all deductions of tax held on the CIS account for the individual Subcontractor will be offset against the Subcontractor’s final tax bill. At this point HMRC will issue a balancing invoice for payment, or, if the individual’s CIS account is in excess of the final tax bill HMRC will refund the over-collection.