The UK tax system might be complicated, but there are processes in place to make things easier to manage for all kinds of workers. The Construction Industry Scheme (CIS), for example, ensures subcontractors meet their tax obligations and avoid charges from HMRC. Let’s find out more about this scheme and how it can benefit you.
The Construction Industry Scheme Explained
If you’re self-employed in the construction industry, you must handle tax correctly, as the companies you work for might not deduct tax or national insurance (NI) at source via their PAYE scheme. It’s therefore up to you to ensure you’re paying the right amount of tax at the correct rate. Registering with the Construction Industry Scheme is optional for subcontractors, but it’ll help you to save money on tax payments.
Under the Construction Industry Scheme, contractors deduct money from a subcontractor’s payments and pass it to HMRC. Contractors will keep 20% back for tax and NI if you’re registered and 30% if you’re not. So it makes sense to register to save that all-important 10% in deductions. Contractors must register for the scheme and can find out more via the government website.
When it comes to CIS, it’s worth noting that you can be a contractor and a subcontractor at the same time. Let’s look at an example:
Stuart is an electrician and is subcontracted to do some work on a local building project. This would fall under CIS as a subcontractor. With a project deadline looming, Stuart gets a trusted electrician friend on board to help out with some important tasks. He therefore becomes a contractor and must register as such in order to pay his friend under CIS.
A CIS tax advisor can help with all issues related to tax and the construction industry.
What Work is Covered by CIS?
CIS covers most construction work to permanent and temporary buildings or structures, making it one of the industry’s more important schemes. It also covers civil engineering work like roads and bridges. You can read the full CIS manual here.
If you want to be sure that the work you’re carrying out falls under CIS, here’s a list of what’s included:
- Preparing the site, for example laying foundations
- Demolition and dismantling
- Building work
- Alterations, repairs and decorating
- Installing systems for heating, lighting, power, water and ventilation
- Cleaning the inside of buildings after construction work
You do not have to register for the CIS if you only do certain jobs, including:
- Architecture and surveying
- Scaffolding hire (with no labour)
- Carpet fitting
- Making materials used in construction including plant and machinery
- Delivering materials
- Work on construction sites that’s clearly not construction – for example, running a canteen or site facilities
Meeting Your Tax Obligations
Knowing whether you’re employed and subject to PAYE taxation or self-employed is a crucial part of business as it’ll avoid tax mistakes. Contractors must make it very clear whether they’re taking on people as employees (even for a short period of time) or subcontractors. Often, companies prefer to hire subcontractors as it requires less paperwork, but the subcontractors must be genuinely self-employed for CIS to activate.
Whether you want to submit a CIS Self-Assessment or find out more about CIS Tax Returns, speak to Ibiss & Co today. As professional and experienced CIS accountants, we’ll ensure your tax liabilities are met. Visit our offices in Barking, Tooting and Walsall and meet our friendly, knowledgeable team.