CIS is a scheme in the UK, issued by HM Revenue and Customs (HMRC), for mainstream contractors and deemed contractors in the construction industry. The difference between the two is that the principal activity of mainstream contractors is construction.
Construction is not the core business operation for deemed contractors, but they tend to have high annual spending in this field.
Under CIS, HMRC specifies guidelines for contractors before they make payments to subcontractors. HMRC mentions that the contractor must be registered under CIS before they take on their first subcontractor. The registered contractor will have to make deductions from their subcontractor’s payments and pay that money to HMRC.
The scheme applies specifically to the UK. However, businesses based out of UK are required to comply with CIS rules if they have ongoing construction projects in the UK.
What jobs and businesses fall under CIS?
CIS covers the following jobs:
The scheme supports all companies, partnerships, and self-employed individuals who are involved in the construction industry. Businesses can be considered contractors, subcontractors, or both.
The terms contractor and subcontractor have special meanings under this scheme.
What is the purpose of CIS?
CIS allows contractors to deduct money from a subcontractor’s payment and forward it to HMRC. These deductions are advance payments towards the subcontractor’s tax and National Insurance (NI).
How to register for CIS
All contractors should register with HMRC for CIS. If you are a subcontractor, you should still register with HMRC even if you would like to opt out of higher deductions.
When to register: Register when you plan on paying your subcontractor, regardless of whether you have to pay the subcontractor a gross or net amount.
How to register: According to HMRC, you should register as a contractor by setting up a new employer account. HMRC will set you up with a contractor scheme and equip you with all the necessary information and guidance.
When to register: Register when you are planning to start a business in the construction industry.
How to register: If you are registering as a sole trader, you can do it online since you already have a Unique Transaction Reference (UTR) number. You will need a Government Gateway user ID and password to use this service. If you don’t have login credentials, you can create them when you register.
You can simultaneously apply for gross payment status. This will notify contractors that they have to pay you in full, without deductions. If you opt for gross payment status, you will be responsible for paying your tax and National Insurance at the end of the tax year.
If you don’t have a UTR, then you will have to register as a new business for self assessment and CIS.
If you are a subcontractor from abroad working for a UK contractor, you will have to register for CIS.
HMRC will confirm your registration and notify you about what information should be shared with your contractors before they pay you.
It’s important to understand your obligations as a contractor and/or subcontractor under CIS. It’s crucial that you register with HMRC and file your monthly returns on time. You must also have a process in place to identify your current construction contracts. If necessary, seek assistance from specialists to ensure compliance with CIS requirements.