CIS Tax: Everything You Need to Know

When it comes to working for yourself, one of the most stressful factors to consider is tax. Whether it’s to do with CIS tax returns or simply paying the tax in the first place, the whole ordeal can be confusing and getting it wrong can be detrimental. As a result, detailed below is a break down of everything you need to know about CIS tax

Construction Industry Scheme (CIS)

As per the Construction Industry Scheme, money is deducted from a subcontractor’s payments by the contractor. This money is then passed on to the governing body and are regarded as advance tax payments. 

It’s down to contractors to register for the scheme, as opposed to subcontractors. Despite this, increased deductions will be taken from subcontractors if they’re not registered. 

Contractors vs. Subcontractors

The most apparent difference between contractors and subcontractors is that contractors pay subcontractors for construction work. Therefore, one would register as a contractor if they paid subcontractors for construction work or if their company doesn’t conduct construction work, but they’ve invested a significant amount of money in construction in the year since they made their initial payment. 

On the other hand, one will register themselves as a subcontractor if they do construction work for a contractor. 

Work Covered by CIS

The majority of construction work is covered by CIS, including civil engineering work, such as bridges and roads, and temporary or permanent structures or buildings. The work within this includes site preparation (e.g., supplying access works and installing foundations, dismantling and demolition, building work, repairs, alterations, and decorating, installation of ventilation, water, power, lighting, and heating, and the final clean after the construction work has been completed. 

Exceptions

With this being said, there are some exceptions to who must register for CIS. These include workers on construction sites that don’t do construction work (e.g., canteen workers), delivery people, material manufacturers, carpet fitters, scaffolding hire services, architects, and surveyors. 

How Much is CIS Tax?

As previously mentioned, whether or not the subcontractor is registered under the Construction Industry Scheme themselves. As a result, 20% gets deducted for registered subcontractors, 30% gets deducted for unregistered subcontractors, and nothing gets deducted if the subcontractor has gross payment status. 

How is a CIS Deduction Made?

Upon the hiring of a subcontractor, an invoice regarding their completed work will be sent over. From the invoice amount, you can subtract the amount the subcontractor has paid for, including manufacturing of prefabricated materials, hired equipment, fuel used for the purpose of construction, equipment that gets rendered unusable, materials, and VAT. Typically, a subcontractor will be happy to provide evidence of what they paid for.

Once all the necessary factors have been deducted, the CIS percentage can be subtracted from the remaining amount. The final figure will be given to the subtractor, whilst the CIS percentage will be given to your governing body. 

What if an Overpayment is Made for CIS?

It’s not uncommon for contractors to overpay on their tax; however, your governing body should automatically process your refund after your tax return has been submitted. In order to obtain this refund, a self-assessment tax return will need to be completed within the requested time frame. 

What Employment Rights Does CIS Create?

As most contractors are self-employed, this provides them with minimal protection under employment law. Therefore, CIS provides these workers with some protection by ensuring they’re treated as employees rather than self-employed individuals. An employee is someone who provides a service as a part of someone else’s business, and CIS helps differentiate between the two. 

Taxes will differ from country to country so be sure to check your local government.