CIS is short for Construction Industry Scheme. It’s HMRC’s way of collecting income tax from people who work in and around the building industry as subcontractors rather than employees.
Contractors in the construction industry often engage independent subcontractors to work on projects with them, rather than employing staff.
Historically a lot of construction industry workers, such as the navvies who built Britain’s railways, were paid in cash and no tax was paid to HMRC on their earnings. The CIS aims to reduce this problem by taxing subcontractors’ earnings as soon as they are paid out by the contractors.
How CIS works
A building firm has their tender for a new housing estate accepted. They source subcontract labour such as bricklayers, plumbers, and roofers.
As an example, the bricklayer submits an invoice to the building firm for the work he has done. The building firm pays him, but keeps back a certain proportion as tax under the CIS, and pays this over to HMRC.
The bricklayer then records the amount of tax that has been deducted from his invoices and shows this on his Tax Return, so that he does not have to pay that tax again.
On a CIS basis you are taxed at a very high rate (20%) and allocated no free tax allowances. You can also claim extensively for any work related expenses such as; accountant fees, travel, telephone, tools, clothing, etc. It is a complex process and to ensure you get it right contact us.
Limited Company Subcontractors – Claiming back Construction Industry Scheme (CIS) deductions
Before claiming a repayment of CIS deductions,
- the company should registered for CIS
- the company is set up with a PAYE scheme (or its existing PAYE scheme has been changed to include CIS – where it pays subcontractors
- the company has received and kept its Payment & Deduction Statements (PDS) from each of its contractors every time it has been paid
- each PDS shows the correct Unique Tax Reference (UTR) for the company and the correct amount of payment and deductions
- the correct amount of CIS deductions taken from the company’s payments are shown on the P35
- you told your contractors about setting up the company – if you were originally engaged as a sole trader or partnership.