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What is the Construction Industry Scheme (CIS)?

Rhino Trade Insurance 15 August 2022

The Construction Industry Scheme (CIS) is a UK programme published by the HM Revenue and Customs (HMRC). It has been issued for those in the trade industry who are either main contractors or subcontractors - two critical distinctions we will discuss throughout this post. 

The scheme is set up for anyone working as self-employed in the construction industry, as you should pay your tax under this scheme. 

What is the Construction Industry Scheme (CIS)?

The Construction Industry Scheme (CIS) is a UK programme published by the HM Revenue and Customs (HMRC). It has been issued for those in the trade industry who are either main contractors or subcontractors - two critical distinctions we will discuss throughout this post.

CIS was set up for anyone working as a self-employed contractor in the construction industry - not an employee. The idea is that any contractor who pays for work you do should withhold the money you owe in tax. This is either taken at 20% or 30% depending on whether you are registered to the scheme or not. 

Even though a contractor may take tax payments on your behalf and provide documents that resemble payslips, you are not an employee. You won’t be able to enjoy all of the benefits and entitlements being an employee brings with them. 

It’s worth remembering that the CIS mainly covers people working in the building and civil engineering space. If you are a self-employed tradesperson going to customers' homes instead of working for a contractor, then you wouldn’t need to register for CIS, and you would handle all of your pay like any normal self-employed individual. 

If you are working in construction and are hired by a contractor, the rate of tax deducted will ultimately depend on whether you register for the scheme at all and if you choose to be a contractor or subcontractor.

What is the purpose of the scheme?

So what is the purpose? Is it just adding another layer of bureaucracy? As you may have deduced from the above, the idea of the scheme is to allow all contractors the ability to deduct money for their subcontractor's pay and send it to the HMRC. 

This is because any deduction becomes advance payments toward the subcontractor's tax and National Insurance.

For example, Dave is a self-employed plumber hired by Water Ltd to work on-site and plumb in 10 new homes. Dave invoices the company each month, this month, he worked 22 labour days and spent nothing on materials. At £200 a day, he invoices for £4,400. However, as Dave is not registered under the CIS scheme, Water Ltd must take off 30% and pay this to the HMRC on Dave's behalf. 

The main advantage to registering for the CIS scheme is that the contractor will only deduct 20% of your gross pay, as opposed to the 30% if you are unregistered. 

What jobs fall under the CIS?

The Construction Industry Scheme covers most of the construction industry and includes any person who works on a permanent or temporary structure or building. Civil engineering on roads and bridges, laying foundations, demolition, repairs, alterations and decorating. Anyone who installs power, water, heating or ventilation. 

There are a few exceptions to the scheme, which include carpet fitting, scaffolding, architecture and surveying and anyone who works on a site but clearly isn't a part of the construction. 

If you are confused, Rhino Trade Insurance has made it simple for you to process. 

When to register?

Every self-employed contractor in the UK should register for the CIS scheme and HMRC, and as we said above, even if you are a subcontractor, you should register to avoid higher deductions on your gross pay. 

For contractors:

Register for CIS immediately when you plan to hire and pay a subcontractor. Regardless of whether you may pay them a gross or net amount. It's simple to register, but Rhino's experts are on hand for you if you need assistance. 

For Subcontractors:

The same can be said for subcontractors. When you decide to become self-employed in the construction industry, you should register with the Construction Industry Scheme. 

How the scheme impacts contractors and subcontractors

As a self-employed tradesperson, you must understand what rules, regulations and obligations you must follow, especially concerning tax and the government. As a contractor or subcontractor, it's critical for the business finances that you register with HMRC and seeks help for CIS reclaim and general accounting if you come up struck. 

Rhino Trade Insurance have many years of experience dealing with a vast and diverse range of tradesmen and women needing help with their accounting. We want to make it as easy and seamless as possible for you to deal with tasks like prepping your personal tax return to fine-tuning your CIS reclaim process. 

If you are a tradesperson or Construction Industry Scheme subcontractor due a tax reclaim, then we can help you submit your return and ensure that you make the most of all beneficial levers you can pull. 

Why Choose Rhino Trade Insurance?

For any self-employed tradesperson, time is money and doing your own accounting can be a complete ballache. That's why getting professional help could be the right step for you! Not only do Rhino pride itself on offering some of the best-tailored trade insurance options for tradespeople. We also have specialists in CIS reclaim ready to help you out. 

Get in touch with our team on 0116 243 7904 or find us online now.

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