UK Construction Industry Scheme (CIS) - a simple guide

What is CIS?

CIS stands for Construction Industry Scheme. It's a set of rules that HMRC uses to collect tax from subcontractors who work in construction.

Who is affected?

• Contractors - businesses or individuals that pay others for construction work

• Subcontractors - people or companies who are paid to do construction work

Whilst the scheme primarily targets construction businesses, it can also apply to other entities that spend £3M+ on construction within a 12-month period, even if construction is not their main business activity.

HMRC collects tax from construction subcontractors using CIS

How it works

1. Contractors must register with HMRC for CIS

2. Subcontractors can also register. If they don’t, more tax is deducted from their payments

3. Before paying a subcontractor, the contractor checks with HMRC how much tax to deduct:

   1. 20% if the subcontractor is registered.

   2. 30% if the subcontractor is not registered.

   3. 0% if the subcontractor has 'gross payment status'

4. Contractors deduct the tax and send it to HMRC and the subcontractor gets the rest

Example - a subcontractor charges £1,000

• If registered - the contractor pays £800 to the subcontractor and £200 to HMRC

• If not registered - the contractor pays £700 to the subcontractor and £300 to HMRC

What is and isn’t CIS related

What is covered under CIS?

Types of work covered include:

• Building, altering, demolishing buildings or structures

• Installing systems like heating, lighting, power, water, ventilation

• Painting and decorating

• Groundwork, foundations, scaffolding, site clearance

What is not covered under CIS?

Types of work not covered include:

• Architecture, surveying, scaffolding design

• Security system monitoring without installation

• Carpet fitting

• Manufacturing construction materials offsite

• Equipment hire without an operator

• Cleaning (not part of construction)

• Admin, payroll, IT services

Grey Areas

• Installing security systems: covered if installed, not if just supplied.

• Landscaping: covered if part of new build, not for garden maintenance.

Landscaping is an example of work which may or may not be CIS related

Quick Business CIS Checklist

1. Is the work part of construction?

- Building or demolishing something?

- Installing or repairing systems (heating, plumbing, electrics)?

- Groundwork or site clearance?

- Decorating?

→ Yes? It's likely CIS applies

2. Is the work not construction?

- Just delivering materials (no installation)?

- Design, surveying, architecture?

- Hiring equipment without an operator?

- Cleaning (not part of building work)?

→ Yes? CIS likely does NOT apply

3. Is the worker directly paid for the work?

- Are you paying someone (not on payroll) to do construction work?

→ Yes? You likely need to apply CIS

4. Are you a contractor or subcontractor?

- Paying for construction work? → You’re a contractor.

- Getting paid to do it? → You’re a subcontractor.

→ Contractors must check and possibly deduct CIS tax

Red Flags / Grey Areas

- Landscaping: New project (Is CIS)? Maintenance (Not CIS)?

- Security systems: Installing (Is CIS)? Supplying only (Not CIS)?

- Scaffolding: Erecting (Is CIS)? Designing (Not CIS)?

Don't get caught out by CIS rules—if you're unsure, it's crucial to check your obligations or seek expert advice to avoid costly penalties.

Points to note:

Subcontractors are responsible for keeping accurate records, including CIS deductions in tax returns and applying for gross payment status if eligible.

Failure to file returns or deductions properly can result in HMRC fines and penalties.

This document is a simplified helpsheet and careful research should be completed if you are unsure.

Need more information? Contact us today for tailored help and advice.

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