• What is CIS tax

What is CIS tax

What is CIS tax
Last Edited: 14/Mar/2019

“CIS” stands for Construction Industry Scheme and is the method employed for collecting taxes from these types of businesses.

If you work as a contractor or self-employed subcontractor in construction or associated trades then you will need register for CIS tax with HM Revenue & Customs.

HMRC specify the following as construction operations:

As a general guide, construction operations cover almost any work that is done to a:

  • permanent or temporary building or structure
  • civil engineering work or installation

The work might include:

  • site preparation
  • alterations
  • dismantling
  • construction
  • repairs
  • decorating
  • demolition

Any registered subcontractors must provide the relevant details to the contractor for verification with HMRC. Upon verification, the contractor is advised of the appropriate tax rate to apply to all payments for that particular subcontractor and this will either be 20% or 30% depending on the circumstances. Some business can arrange for “gross status” if certain criteria is met with HMRC and in these cases no tax is deducted.

The information subcontractors need to provide is:

  • Limited companies – company registration number and company UTR number
  • Sole traders & partnerships – National Insurance number and personal UTR number

Tax is only calculated on the labour element of the work, so any invoices raised should clearly distinguish the breakdown between labour and materials.

Each month, contractors are obligated to issue payment certificates to subcontractors that cover all payments and tax deductions made within the period. They also need to submit a monthly CIS return to HMRC and also pay over these deductions by a set deadline, similar to PAYE. CIS returns are based on payments made rather than invoices raised and are submitted online either through the businesses Government Gateway Account with HMRC or via compatible software.