Before we establish whether or not your business should be participating in the CIS or Construction Industry scheme first let’s briefly look at what exactly it is. Essentially it’s a scheme that was brought in by the HMRC as a way for them to collect income tax from people in the construction industry who work as subcontractors rather than employees. It is important for the construction industry in particular as more and more companies prefer to employ subcontractors for particular areas of their projects rather than the costs and the paperwork involved with employing people.
If you’re registered with the Construction Industry Scheme when you’re being paid your salary as a subcontractor you’ll have a total of 20% tax deducted from your salary. Now, this may seem like a lot, however, if you’re subcontracting within the construction industry and you’re not registered with the CIS, you’ll be deducted an extra 10% in tax taking this up to 30% so it’s worthwhile getting yourself registered with the scheme to save yourself being taxed more than you need to be.
You’ll know if you’re a subcontractor if you carry out work for a business who themselves are a contractor. This applies to both one-off jobs or ongoing work with the same contractor.
When we mention the construction industry it can include all of the following:-
- Preparations onsite
Now let’s move on to whether you need to be CIS registered. If your business is within the construction industry and you’re subcontracted to do work for a company, you would need to register in the CIS scheme as if you don’t you could face an extra 10% deduction on your tax. There is another option, however, if your business is turning over at least £30,000 and you’ve got a good history when it comes to tax compliance you’ll be able to apply for what’s called a ‘gross payment’ whereby you will be paid in full by the contractor however you will be liable for sorting out your tax bill.
If you’re unsure over whether you need to be participating in the CIS you just need to ask yourself 2 simple things, are you/ is your business based in the construction industry? If so, that’s the first box ticked off. Next, are you subcontracting as part of your job on a particular project? If both of these apply to you get yourself registered with the CIS. It’s free to register and this applies to both sole traders and limited companies.
If you need to register for the CIS you will need to get in touch with HMRC who will guide you through the process. If you want to to know more about the CIS scheme and how it will affect your business feel free to get in touch with the team here at D&K Accounting. We can also look into whether you may have been paying more tax than you needed to and if this is the case we can look into getting you a rebate.