Let’s start with what CIS means – the Construction Industry Scheme. So if you are a ‘CIS subcontractor’, it means that you are a working as a subcontractor and you are registered for the Construction Industry Scheme.
Why does the Construction Industry Scheme exist?
This is a tax collection scheme specifically designed for the construction industry. The Tax Office felt they were missing out on substantial amounts of tax payments because there are a large number of self employed workers in the construction industry. So for HMRC, the CIS closes this loophole and avoids potential losses to tax evasion.
How does it work?
A CIS contractor applies the CIS rate of tax to any payments it makes to a CIS subcontractor and pays them directly to HMRC. This does not apply to contractors’ employees, but to subcontractors working under contract with the contractor. These deductions are counted towards the subcontractors’ National Insurance and tax bills. Both contractor and subcontractor must be registered for CIS before any construction work begins.
I am a subcontractor, what’s in it for me?
Your biggest benefit in registering for CIS as a subcontractor is that you get a 10% deduction in the rate of tax you pay. Currently, if you are not registered for CIS, you pay 30% tax. If you are registered for CIS, you pay only 20% tax. This is excluding cost of materials and plant hire, and VAT . You do not have to register for CIS, but you pay the higher tax rate if you don’t.
If you have paid too much tax through CIS, you can apply for a CIS tax refund. You can also claim work expenses as a CIS subcontractor. You declare your income and claim your tax refund at the same time when you complete your end of year self assessment tax return.
Read our CIS subcontractor page to find out more about being a CIS subcontractor, including: how HMRC defines ‘construction work’, who is eligible for the CIS and how you apply to join the scheme.