The Construction Industry Scheme (CIS) sets out the rules for how payments to subcontractors for construction work must be handled by contractors in the construction industry.
The scheme applies mainly to contractors and subcontractors in mainstream construction work, however businesses or organisations whose core activity isn't construction but have a high annual spend on construction may also count as contractors and fall under the scheme.
If you work as a subcontractor in the Construction Industry Scheme you must register with HM Revenue & Customs (HMRC) before you start working.
If you don't register with HMRC, contractors have to make a deduction from your payments at the higher rate - 30%.
If you're intending to work within construction you'll want to register with HMRC before you start doing so. If you don't register with them, deductions will be made from your payments at the higher rate (30%). You can register by calling HMRC’s CIS Helpline on Tel 0845 366 7899 (open from 8.00 am to 8.00 pm, seven days a week).
You'll need to tell HMRC the name of the business you want to register - your own name if you trade under it as a self-employed individual - and the unique taxpayer reference number for the business. You can also give them one other trading name for the business.
How do I get paid under CIS scheme ?Under CIS, contractors may have to 'verify' the subcontractors who work for them. This means checking your payment status with HM Revenue & Customs (HMRC) so they can pay you the right amount.
When the contractor contacts HMRC to verify you, HMRC will match up the information you've given the contractor with the details you gave HMRC.If you don't register - or if HMRC can't verify you because you haven't given the contractor the correct details about yourself - you could end up with a deduction from your payments made at the higher rate (30%).
Your contractor will make a deduction on account of your tax and NICs before they pay you. The standard deduction rate of 20% applies if you've registered for CIS and the contractor's verified your details successfully.
If you haven't registered for CIS or the contractor couldn't verify you, they'll have to make deductions at the higher rate of 30%. You can claim credit for these deductions through your annual tax return.
Subsistence and travelling expenses count as pay, so they'll be liable for deductions too. But VAT, the cost of materials and certain other costs like plant hire don't count as pay, so the contractor will exclude them when they work out how much to deduct.
At the end of the financial year, you'll need to complete a tax return. HMRC will work out your tax and NICs bill and set any deductions you've had made against it. This will show whether you're due a refund or you need to make further payments. If you have tax deducted, make sure your contractor gives you monthly statements of payments and deductions. Keep these statements to help you fill in your tax return.