What Is The Construction Industry Scheme (CIS)?

Registration for the Construction Industry Scheme applies to both contractors and subcontractors. There are some key considerations to understand who needs to register:

Contractors:

Contractors who carry out construction work are required to register under the CIS. This includes businesses or self-employed individuals involved in activities such as building, alteration, repairs, demolition, installation of heating, plumbing and electrical systems.

Paying Others for Construction Work: If a contractor pays others for construction work, including subcontractors, they must register for the CIS. The payments can be made to both individuals and companies.

Subcontractors:

Subcontractors who work in the construction industry are generally required to register under the CIS. This includes self-employed individuals or businesses engaged in construction activities.

Working for Contractors: Subcontractors who work for contractors and receive payments for construction work are required to register for the CIS. This applies whether they are working as individuals or operating through a company.

You also need to register if your business does not do construction work but you have spent more than £3 million on construction in the 12 months since you made your first payment or spend an average of £1 million or more per year over three years on construction work.

Most businesses and individuals involved in the construction industry in the UK are required to register for the Construction Industry Scheme (CIS). However, there are certain exemptions where registration may not be necessary:

• Architecture and surveying services
• Professional engineering services
• Carpet fitting
• Scaffolding hire (without labour)
• Manufacturing or delivering building materials
• Making materials for use by a construction company
• Providing equipment with an operator
• Work on construction sites for charitable purposes

It's important to note that these exemptions may have specific criteria and limitations, so it's advisable to consult with HM Revenue and Customs (HMRC) or seek professional advice to determine eligibility for exemption.

If a person is an employee and not self-employed, they are generally not required to register for the CIS. The CIS primarily applies to self-employed individuals, partnerships and companies.

Some businesses that are not traditionally considered contractors but meet specific criteria can be classified as "deemed contractors" and may need to register for the CIS. This typically includes businesses in the construction industry with an annual spending on construction operations that exceeds a certain threshold set by HMRC.

It's important to review the specific rules and guidelines provided by HMRC to determine whether your particular situation falls under the exemptions or registration requirements of the CIS. HMRC's website provides detailed information and resources related to the Construction Industry Scheme, and consulting with a tax professional can also provide tailored advice based on your circumstances.

To register for the Construction Industry Scheme (CIS) in the UK, you will need to gather certain information and follow the registration process outlined by HM Revenue and Customs (HMRC).

Required Information:

• Your business or trading name (if applicable).
• Your Unique Taxpayer Reference (UTR) number. If you don't have one, you'll need to register for Self Assessment with HMRC first.
• Your National Insurance number (if you're an individual).
• Your business's legal structure and contact details.
• Your business's turnover from construction work.

Registration Method:

• Registering online is the most common and convenient method. You can register for the CIS using the online service provided by HMRC.
• If you prefer not to register online, you can call the CIS helpline or request a paper form by post.

Registering Online:

• Visit the HMRC website and log in to your Government Gateway account. If you don't have one, you'll need to create an account during the registration process.
• Once logged in, navigate to the CIS section and select the option to register for the scheme.

Registration Timeframe:

• Registering online is typically the fastest method, and the process can be completed within a few days.
• If you choose to register by phone or post, it may take longer for HMRC to process your application, usually around 4-6 weeks.

After Registration:

• Once your registration is processed, HMRC will send you a letter confirming your CIS registration. This letter will include your CIS registration number and any other relevant details.
• You will be able to start using the CIS system and follow the rules for making payments to subcontractors, deducting tax, and submitting monthly returns.

• Failing to register for the Construction Industry Scheme (CIS) can have several consequences and may result in penalties imposed by HM Revenue and Customs (HMRC).
• If you fail to register for the CIS within the required timeframe, HMRC may impose penalties. The penalty amount can vary depending on the length of the delay and the amount of tax and National Insurance contributions involved.
• Registering for the CIS allows subcontractors to apply for gross payment status. This means they can receive payments from contractors without deductions. If you don't register, you won't be eligible for gross payment status, and contractors will deduct the appropriate percentage from your payments.
• Contractors are required to make deductions from payments to subcontractors under the CIS. If you're not registered, contractors may still deduct a higher rate (30%) rather than the standard rate (20%) for registered subcontractors. This can result in overpayment of tax and create complications in reclaiming the excess deductions.
• Many contractors only engage with subcontractors who are registered under the CIS. If you're not registered, you may miss out on potential business opportunities within the construction industry.
• Non-compliance with the CIS can trigger an investigation by HMRC into your tax affairs. If evidence of tax evasion or deliberate non-compliance is found, it can lead to legal consequences, including additional penalties, fines, or even criminal prosecution.
• Compliance with tax regulations not only helps avoid penalties but also maintains your reputation and credibility within the construction industry.

If you are a contractor then you first need to register with HM Revenue & Customs and before you pay a subcontractor you need to establish their employment status to understand whether: 

• They qualify as an employee (in which case you must pay them through PAYE like other employees).
• They are self-employed and registered as a subcontractor with HMRC, so that HMRC can give direction on whether they should be paid gross or take the standard 20% reduction from payments made.  
• They are not registered with HMRC. In this case you would need to verify the subcontractor with HMRC to determine that they would have the standard 20% reduction applied or whether they should have the higher 30% rate applied to payments.
  

You must verify whether a subcontractor is registered by using the HMRC Online service or commercial software.  The subcontractors tax reference and National Insurance number will be needed and if you make any deductions this will need to be confirmed to the subcontractor in writing.  These deductions need to be paid to HMRC either monthly or quarterly as well as completing the Construction Industry Scheme returns. 

You should make sure that any payroll service or software you use can handle the requirements of the Construction Industry Scheme.  The Access group provide software that can help you manage this process through their ERP product - Access Coins. 

Subcontractors must register with HMRC by calling the CIS helpline before starting work.  

To register for the Construction Industry Scheme (CIS) you’ll need: 

• your legal business name - you can also give a trading name if it’s different to your business name 

• your National Insurance Number 
• the unique taxpayer reference number (UTR) for your business 
• your VAT registration number (if you’re VAT registered) 

If you’re a subcontractor and a CIS contractor (you pay subcontractors to do construction work), you’ll need to register for CIS as both. 

If you’re a sole trader and you already have a UTR, you can register for CIS online. You’ll need the Government Gateway user ID and password you used when you registered for Self Assessment (or another government service). 

You can apply for gross payment status at the same time. 

If you do not have a UTR, register as a new business for Self Assessment and choose ‘working as a subcontractor’ when prompted. You’ll be registered for Self Assessment and CIS at the same time. 

You can also call the CIS helpline to register. 

Register as another type of business 

Fill in the online form for limited companies or the online form for partnerships. 

HMRC will register the partnership separately to your sole trader registration. They will need the partnership UTR and trading name. 

You are based abroad 

You should still register for CIS if you are a subcontractor based abroad but do construction work in the UK. 

Any deductions made count towards the tax and National Insurance contributions you have to pay - either through tax self-assessment (if you are self-employed) or the PAYE system (if you are a limited company). If the deductions are more than the total due to HMRC, you can claim a refund. 

Registering for the Construction Industry Scheme (CIS) offers several advantages for both contractors and subcontractors. By ensuring compliance with HMRC regulations, CIS provides financial and operational benefits.

Improved Cash Flow Management

For subcontractors, CIS helps to stabilise cash flow by reducing the immediate tax burden. Instead of facing a large tax bill at the end of the financial year, subcontractors have their tax deducted at source by contractors at a rate of 20% (for registered subcontractors) rather than the higher 30% applied to those who are unregistered. This helps prevent unexpected financial shortfalls and ensures that tax contributions are made progressively throughout the year.

Simplified Tax Payments and Compliance

CIS simplifies tax obligations for subcontractors by ensuring that deductions are made regularly. These deductions count towards the subcontractor’s overall tax and National Insurance liabilities, reducing the risk of large, unexpected payments at year-end. 

Reduced Risk of HMRC Penalties

Non-compliance with CIS can result in penalties from HMRC, including fines and higher tax deductions. By registering for the scheme, contractors and subcontractors reduce their risk of facing financial penalties and ensure they are operating within HMRC’s legal framework.

Navigating the Construction Industry Scheme (CIS) can be complex, and both contractors and subcontractors can make costly mistakes. Here are some common pitfalls and how to avoid them: 

Failing to Verify Subcontractors: Contractors must verify subcontractors with HMRC before making payments. Failing to do so can result in applying the wrong tax deduction rate, which could lead to penalties or financial loss. Solution: Always use HMRC’s online verification tool before engaging a subcontractor.

Incorrect Tax Deductions: Applying the wrong tax deduction rate—such as 20% instead of 30% for unregistered subcontractors—can result in non-compliance. Solution: Ensure that deductions are correctly calculated based on the subcontractor’s CIS registration status.

Late CIS Returns & Payments: Contractors must submit monthly CIS returns and pay deductions to HMRC on time. Late submissions can lead to penalties and interest charges. Solution: Use accounting software or set up reminders to meet all CIS deadlines.

Confusing CIS with VAT Reverse Charge: Some businesses struggle to differentiate between CIS deductions and VAT reverse charge requirements, leading to incorrect invoices. Solution: Seek professional advice or use specialised software to ensure compliance with both CIS and VAT rules.

Software can play an important role in helping Construction Industry Scheme (CIS) compliance.  It can save time, improve accuracy and ensure compliance with the scheme.  

Access Coins ERP submits your Construction Industry Scheme (CIS) reverse charge VAT returns at a click of a button.  

This is just one of the many features of construction management software that gives you the power to manage your business more efficiently and effectively.