If you are self‑employed in the construction sector, you may have heard about the Construction Industry Scheme (CIS). Many sole traders are unsure how it works and what they need to do to comply. Here is a clear guide to understanding CIS and how to operate it correctly.
What is the Construction Industry Scheme (CIS)?
The Construction Industry Scheme is a set of rules laid down by HM Revenue & Customs (HMRC) for contractors and subcontractors in the construction industry. Under the scheme:
- Contractors deduct money from a subcontractor’s payments.
- The contractor passes those deductions to HMRC.
- These deductions count as advance payments towards the subcontractor’s tax and National Insurance.
The scheme was introduced to reduce tax evasion and make sure tax is collected correctly from payments in the construction sector.
Who Needs to Register for CIS?
If you are self‑employed and do construction work for a contractor, you must register as a subcontractor under CIS.
If you also pay other subcontractors for construction work, you must register as a contractor as well.
Construction work covered by CIS includes activities such as site preparation, bricklaying, roofing, plastering, plumbing, decorating, demolition, and repairs.
How to Operate CIS as a Sole Trader
If you are a sole trader in the construction industry, follow these steps to operate under CIS:
1. Register as Self‑Employed
Before you can register for CIS, you must be registered with HMRC as self‑employed and have a Unique Taxpayer Reference (UTR).
2. Register for CIS
You need to register as a subcontractor for the CIS. This can be done online or by contacting HMRC. When registering, have your UTR and National Insurance number ready.
3. Provide Your Details to Contractors
Give your UTR and CIS details to each contractor you work with. They will verify your status with HMRC to see what deduction rate applies to you.
4. Understand CIS Deductions
- Standard registered subcontractors have 20% deducted from their payments.
- If you are not registered, contractors must deduct 30%.
- If you qualify for gross payment status, you will receive the full payment with no deductions and pay tax later through Self Assessment.
5. Keep Accurate Records
Keep all your CIS statements from contractors. These statements show how much was deducted from your payments. You should also keep invoices and records of your business expenses, such as materials, tools, and protective clothing.
6. File Your Self Assessment
At the end of the tax year, file your Self Assessment tax return. Include your income, expenses, and the CIS deductions shown on your statements. HMRC will work out if you owe more tax or if you are due a refund.
Example
If you invoice a contractor £2,500 for labour, they may deduct 20% (£500) under CIS and pay you £2,000. When you complete your tax return, you still report the full £2,500 income and claim credit for the £500 already deducted. If your total tax liability for the year is less than the amount deducted, HMRC will refund the difference.
Why Get Professional Help?
CIS rules are straightforward once you understand them, but keeping on top of registration, record keeping, and claims can be time‑consuming. Many sole traders choose to work with an accountant who specialises in construction to make sure they claim everything they are entitled to and remain compliant with HMRC.
If you need help registering, operating CIS, or filing your tax return, speak to a qualified accountant who understands the construction industry. They can save you time and help you claim back any overpaid tax.