Construction Industry Scheme (CIS)

What is the construction industry scheme?

The construction industry scheme (CIS) is a mechanism of withholding taxes and requires contractors to take a percentage of earnings from subcontractors and pay HMRC directly. It was introduced in part to reduce tax avoidance and evasion, whilst also ensuring subcontractors can spread the burden of their taxes throughout the year.

Depending on whether you’re a contractor or a subcontractor, your obligations and what you need to do will differ.

We work extensively in the construction & trade sector and have many clients who work within the CIS, as contractors and subcontractors.

How we support contractors

We work with contractors to make sure they understand their obligations and remain completely compliant throughout the process.

First you will need to collate all the details of your subcontractors and verify them, to determine their tax status and what is to be withheld. For the payments made to subcontractors throughout the month, you will need to file what is known as a CIS 300, then provide payment & deduction statements to your subcontractors no later than 14 days after the end of each tax month.

We pull together all the statements, calculate the amounts withheld and file the CIS 300 all on your behalf, so you know what to pay and when. We’ll keep track of all the records on your accounting system, so you know where your tax position is each month.

How we support subcontractors

As a subcontractor, your first job is to register. By doing this, you will reduce the amount of tax withheld from 30% to 20%. You should register before you are verified by the contractor you work for.

Record keeping is then incredibly important. We will guide you through how the bookkeeping and record tracking means you can rely on your accounting system to give you a running total of taxes withheld and configure it to track and record CIS correctly from invoice to payment.

If you are a limited company, we’ll even log the amount withheld and file as part of an EPS (employer payment summary), which means you can use CIS withheld to partially offset your PAYE taxes due.

Finally, we will support you through your claim process. For a subcontractor who is a sole trader, this is facilitated as part of your tax return. For limited companies, you have a slightly different approach to claiming. Either way, we’re well versed in both. In some cases, clients have overpaid tax and receive a rebate.

You should also ensure you receive subcontractor payment & deduction statements (PDS) for your records. The CIS statements filed above are giving HMRC a record of what they believe has been withheld and therefore ensuring you have payment & deduction statements from contractors is incredibly important, in case HMRC dispute what you claim. If this happens, you’ll need to prove you have had taxes withheld from a contractor. We’ve helped clients negotiate this before too, so we’re even prepared for when things aren’t quite so straightforward.

As a subcontractor, you may as well be able to register for gross status, meaning no taxes are withheld. This could have benefits to your cash flow, but also means you will also need to ensure you are appropriately saving for your taxes throughout the year.