What you must do as a Construction Industry Scheme (CIS) subcontractor

Overview

You should register for the Construction Industry Scheme (CIS) if you work for a contractor and you’re one of the following:

• self-employed
• the owner of a limited company
• a partner in a partnership or trust

Under CIS, a contractor must deduct 20% from your payments and pass it to HM Revenue and Customs (HMRC).

These deductions count as advance payments towards your tax and National Insurance bill.

If you don’t register for the scheme, contractors must deduct 30% from your payments instead.

If you don’t want deductions made

If you don’t want deductions to be made in advance by contractors, you can apply for ‘gross payment status’. You can do this when you register for CIS.

How to register

To register for the Construction Industry Scheme (CIS) you’ll need:

• your legal business name - you can also give a trading name if it’s different to your business name
• your National Insurance Number
• the unique taxpayer reference number (UTR) for your business
• your VAT registration number (if you’re VAT registered)

Register as a sole trader

If you’re a sole trader and you already have a UTR you can call the CIS helpline or register for CIS online.

Register for CIS online

1. Log in with your Government Gateway ID.

2. From ‘Your tax account’, go to ‘Other services’.

3. Choose ‘Construction Industry Scheme – Subcontractors’.

You can apply for gross payment status at the same time.

If you don’t have a UTR, register as a new business for Self Assessment and choose ‘working as a subcontractor’ when prompted. You’ll be registered for Self Assessment and CIS at the same time.

Register as another type of business

Fill in the online form for limited companies or the online form for partnerships.

HMRC will register the partnership separately to your sole trader registration. They’ll need the partnership UTR and trading name.

You’re based abroad

You should still register for CIS if you’re a subcontractor based abroad but do construction work in the UK.

Help and support

Call the CIS helpline for help with registering.

You can also sign up for webinars and emails or watch videos from HMRC about CIS.

Get paid

To be paid correctly by a contractor, make sure you give them the same legal business name or trading name you gave when you registered for the Construction Industry Scheme (CIS).

If you don’t, this could affect how much you get paid.

Deduction rates

When a contractor pays you under CIS, they’ll normally make deductions at the standard rate of 20%.

Contractors will make deductions at a higher rate of 30% if:

• you aren’t registered for CIS
• they can’t verify you
• you give the wrong name for your business

Your contractor should give you monthly statements of payments and deductions. Use them to calculate whether you still owe tax and National Insurance to HM Revenue and Customs (HMRC) or are due a refund.

Gross payment status

You can apply for gross payment status when you register for CIS. This means the contractor won’t make deductions from your payments and you’ll pay all your tax and National Insurance at the end of the tax year.

What doesn’t count as your pay

Contractors won’t make a deduction from amounts you charge on your invoice for:

• VAT
• materials
• equipment
• plant hired for the job
• manufacturing or prefabricating materials

Pay tax and claim back deductions

When you’re registered with the Construction Industry Scheme (CIS), you’re still responsible for paying the correct tax and National Insurance for your business, even if deductions have been made by contractors throughout the year.

Contractors will give you a monthly statement of what they’ve paid you and deductions they’ve made to help with your accounting.

Sole traders and partners

At the end of the tax year, send in your Self Assessment tax return as usual. You should record:

• the full amounts on your invoices as income
• any deductions contractors have made in the ‘CIS deductions’ field

HM Revenue and Customs (HMRC) will work out your tax and National Insurance bill and take off any deductions made by contractors.

If you still owe tax after this, you’ll need to pay it by 31 January following the end of the tax year.

If you’re due a tax refund, HMRC will pay the money back.

Limited companies

If you have gross payment status, declare all your income in your Corporation Tax return as usual.

If you pay CIS deductions, you must claim these back through your company’s monthly payroll scheme. Don’t try to claim back through your Corporation Tax return - you may get a penalty if you do.

1. Send your monthly Full Payment Submission (FPS) as usual to HMRC.

2. Also send an Employer Payment Summary (EPS). Fill in what deductions have been made that month in the ‘Construction Industry Scheme deductions’ field. Also enter the total CIS deductions for the year to date.

3. HMRC will take your CIS deductions off what you owe in PAYE tax and National Insurance. Pay the balance by the usual date.

If your company’s PAYE bill for the period is reduced to zero and you still have some CIS deductions you haven’t been able to claim back, carry these forward to the next month or quarter (in the same tax year). Tell HMRC in the EPS that you have nothing to pay.

Keep records

Your company must keep a record of amounts claimed back against your monthly or quarterly PAYE bill.

You can use form CIS132 to do this or keep your own records.

If you paid too much in CIS deductions

HMRC will pay back any deductions your company hasn’t been able to claim back from its PAYE bill during the tax year.

If your company goes into administration

If your company goes into administration or liquidation, the person managing it should write to HMRC to ask for CIS deductions to be repaid straight away.

How to get gross payment status

You can apply for gross payment status when you register for CIS.

This means contractors will pay you in full, without deductions. You’ll pay all your tax and National Insurance at the end of the tax year.

If you’re already registered for CIS, you can apply for gross payment status by calling the CIS helpline or applying online.

Apply for gross payment status online

1. Log in with your Government Gateway ID.

2. From ‘Your tax account’, go to ‘Other services’.

3. Choose ‘Construction Industry Scheme – Subcontractors’.

To qualify

You must show HM Revenue and Customs (HMRC) that your business passes some tests. You’ll need to show that:

• you’ve paid your tax and National Insurance on time in the past
• your business does construction work (or provides labour for it) in the UK
• your business is run through a bank account

HMRC will look at your turnover for the last 12 months. Ignoring VAT and the cost of materials, your turnover must be at least:

• £30,000 if you’re a sole trader
• £30,000 for each partner in a partnership, or at least £200,000 for the whole partnership
• £30,000 for each director of a company, or at least £200,000 for the whole company

Paying tax when you have gross payment status

You must declare your payments as income at the end of the tax year in:

• your Self Assessment tax return if you’re a sole trader or partner
• your Corporation Tax return if you own a limited company

Annual review

If you have gross payment status, HM Revenue and Customs (HMRC) will review your business every year, to decide if you can keep your status.

You must be on time with your tax returns and payments to keep your gross payment status.

You don’t meet all the conditions

You could fail the review and HMRC will remove your gross payment status. You’ll be allowed a small amount of late payments or returns.

Contact HMRC if you have problems paying your tax on time. If HMRC give you more time to pay, this won’t affect your gross payment status.

You fail your review

You’ll get a letter explaining you’re about to fail the review, along with the reasons why.

If you disagree, you can write back with your reasons.

If HMRC accept your explanation, they won’t remove your gross payment status.

If you don’t reply to the letter or HMRC don’t accept your explanation, they’ll write to explain:

• what conditions you haven’t met
• that they’re withdrawing your gross payment status in 90 days

If you think HMRC have made the wrong decision, you have 30 days from the date of this letter to appeal.

Reapplying for gross payment status

If HMRC cancel your gross payment status, you need to wait a year from the date of the cancellation before you can reapply.

Changes you need to report

Report changes by calling the CIS helpline.

Tell them if you:

• change from a sole trader to a partnership
• leave a partnership or company to become a sole trader
• create a company or change your business to a company

You’ll usually need to register again for the Construction Industry Scheme (CIS) - as you can’t transfer the registration from your old business structure.

If you have gross payment status, you’ll need to apply again.

You must also tell HM Revenue and Customs (HMRC) if you:

• change your trading name
• change your business, private or registered office address
• stop trading
• add new shareholders - HMRC may withdraw your gross payment status if you don’t tell them within 30 days

Stop trading

If your business goes into administration it can keep receiving payments for work it’s done under CIS. It should be paid in the same way that it was paid normally - either gross or under deduction.