Understanding the Construction Industry Scheme (CIS): What to Know
Working in the construction industry as an independent contractor, freelancer, or self-employed involves different tax rules and regulations. To avoid the rampant tax evasion in the landscape, the UK’s Construction Industry Scheme (CIS) initiates tax deductions dedicated to contractors and sub-contractors.
What is the Construction Industry Scheme (CIS)?
CIS enables British contractors and sub-contractors to process payments and taxes in a way that follows the provisions set by the Her Majesty’s Revenue and Customs (HMRC). The scheme strives to simplify the complexities of tax affairs for contractors and sub-contractors, taking into account their income tax, national insurance contributions, and other deductions automatically to eliminate the burdens of filing individually for non-employees.
How Does the Construction Industry Scheme (CIS) Work?
The first step to making the most of the CIS is to first determine whether you’re eligible. With that in mind, you can qualify and must register for CIS if you are a contractor, use subcontractors, or if the business spends over £1 million within a three-year period.
As for the CIS rules, contractors are required to withhold tax payments at either 20 per cent for registered contractors or subcontractors or 30 per cent for those who are unregistered for the CIS. That means all self-employed workers are entitled to tax deductions towards the subcontractors’ tax and National insurance.
Contractors and Sub-contractors: What is Covered by the CIS?
Not all contractors or sub-contractors are obliged to follow CIS, so the job entails the following responsibilities to be covered by the CIS:
- If the construction work involved a permanent or temporary building;
- If it requires civil engineering works like roads and bridges;
- If the construction work includes site preparations like laying foundations, demolition, dismantling, building, alterations, repairs, or decorating;
- If the construction work requires installation of systems like heating, lighting, power, water, and ventilation;
- If the construction work requires clean-up of the interior buildings;
With that in mind, contractors do not have to register to the CIS if the job includes the following:
- Architecture
- Surveying
- Scaffolding hire with no manual labour involved in the process
- Carpet fitting
- Delivery of materials
Keep in mind that deductions vary, so for unregistered subcontractors, you may get 30 per cent tax deductions off payments. The rate goes down to 20 per cent for subcontractors who are CIS registered, but there are exceptions such as zero deductions for self-employed workers who qualify for gross payments.
The Bottom Line: Breaking Down the Basics of the Construction Industry Scheme
If you’re a self-employed individual working for a contractor in the construction industry, then you can benefit from the Construction Industry Scheme as it automatically deducts taxes from payments made to subcontractors.
How Can We Help You?
If you’ve overpaid your taxes, you may be due for a tax refund from the HMRC. With that being said, it’s best to apply for a tax refund right away; that’s why Tax Refund Calculator is here to simplify your calculations.
Tax Refund Calculator can help you get back that’s yours by calculating whether you’ve paid too much tax or have unused uniform allowance or marriage tax allowance. Check your refund today!