Construction Industry Scheme (CIS)

What is CIS?

The Construction Industry Scheme (CIS) is a scheme created by HM Revenue & Customs (HMRC) to minimise tax evasion within the construction industry. Having such a large number of mobile, self-employed workers meant that a special system had to be designed around them to mitigate potential losses to HMRC.

CIS rules apply to all payments made by a contractor to a subcontractor under a construction contract, but does not apply to employees. Failure to comply with the Scheme may result in expensive penalties.

Service overview

Brookson are proud to support end clients, recruiters and workers who engage in construction operations and have a comprehensive range of solutions to suit all needs as detailed below:

Getting Started

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CIS LIMITED COMPANY

Brookson Limited offer accountancy services including sector-specific tax and accounting advice, and access to specialist independent legal and financial advice to sub-contractors operating their own Limited Company registered with HMRC under the CIS Scheme. We help you to register for, and comply with, all of your statutory responsibilities as a Director of your own Company operating under the CIS scheme, and our innovative technology platform makes your working life easy.

CIS SOLE-TRADER

Brookson Construction offer support for self-employed sole traders operating under the CIS scheme. We can help workers to register for CIS, receive and process gross payments, and ensure that the correct deductions are made at source based on your status. To ensure compliance with all relevant legislation, Brookson Construction will conduct a robust and reliable Supervision, Direction and Control (SDC) assessment for each assignment so recruiters and workers have confidence that all income is subject to the correct tax regime. Support with completing your SATR is also available from us.

CIS UMBRELLA

Brookson CIS Umbrella offer a simple, convenient PAYE payroll solution for individuals working within CIS projects, where agencies and end clients require an intermediary registered for CIS, but where the worker is unable to pass an SDC assessment for their assignment, or where an agency/end client are unwilling to engage with sole-traders as part of their supply chain.

Key Service Benefits

Brookson's support to end clients, recruiters and workers who engage in construction operations has a wide range of benefits.

 

Over 20 years specialist knowledge and experience

 

Full range of trading options: self-employed, umbrella, LTD company accountancy services

 

Expert, jargon-free advice for contractors

 

Nationwide coverage and dedicated points of contact available on the phone and face to face

 

Training & proactive support to comply with off-payroll legislation

 

Straightforward & speedy set-up processes

The type of work that falls under the CIS term “construction operations” includes most things that are done in the UK and its territorial waters to a building, structure, civil engineering work or installation, whether of a permanent or temporary nature including; groundwork, construction, alteration, repair, extension, demolition and dismantling. Activities you may not normally consider like cleaning the interior of a building, fencing and landscaping during the construction phase are included in scope, whereas they would not be in scope, even on the same property, once the construction project ends.

CIS applies to all contractors and subcontractors, whether sole-traders, partnerships, or companies, who are working within the mainstream construction industry. “Contractor” and “Sub-Contractor” have very specific meanings in relation to CIS, different from common usage in the recruitment sector. “Contractors” can include entities many non-construction businesses or organisations, such as property developers, local authorities, and housing associations, that spend annually £1 million or more over a three-year period on construction work. Sub-contractors are engaged by the contractor on a contract relating to construction operations to arrange for the execution, or to supply human resources to complete work, which can include recruitment agencies or intermediaries, as well as individual sole traders, Limited companies or partnerships operated by workers.

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Not all major construction projects are in the scope of CIS – for example shipbuilding requires many of the same skilled trades and processes, but is not a CIS eligible project because a ship is classified as a vehicle.

In addition, some aspects of projects may be specifically excluded from scope even where most other aspects of the same project clearly are in scope. For example, installing heating and air-conditioning systems in a new building would fall within CIS, but installing IT or security systems in the same building as part of the fit-out process would not. The work of professionals such as architects, quantity surveyors, consultants in building, engineering, interior or exterior decoration or landscapes is specifically excluded, as is work done by other consultants unless they are directly involved in the management or execution of the work. Similarly, activities supporting construction operations, but not in itself construction, are out of scope – e.g. operating a canteen, hostel, medical, safety, security, delivering road-making, or building materials etc.

For recruiters, HMRC publish extensive guidance online, in addition to operating helplines, and should be consulted if there is any doubt as to whether the project and/or activity fall in or out of scope of CIS. To view this guide click here

For workers, specialist recruiters have the skills and expertise to guide new entrants and will be able to confirm whether your assignment is in or out of scope of CIS. In addition, HMRC publish extensive guidance online, in addition to operating helplines, and can be consulted if there is any doubt as to whether the project and/or activity fall in or out of scope of CIS.

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An example supply chain

To use the example of a fictional supply chain, the contractor e.g. Anywhere Housing Authority appoint a main sub-contractor e.g. Housebuilder & Co, who arrange for the project to be executed, using some of their own staff plus additional resources. They engage with other parties including a recruitment agency e.g. Builder Recruitment to supply temporary staff to the project. Builder Recruitment in turn contract with a CIS registered intermediary e.g. Brookson Construction to engage with their workers and process the payroll. Brookson Construction engage with the individual construction workers, ensuring that they are paid compliantly via the most relevant and advantageous method for them including Limited Company, Umbrella or self-employed (sole trader).

Anywhere Housing Authority, the Contractor who has commissioned the project, is responsible for establishing the correct payment method for Housebuilder & Co, their main sub-contractor.

Before they can pay them, they must:

  • Confirm the subcontractor's employment status as self-employed. If not, the CIS scheme does not apply and the subcontractor is paid under PAYE via the payroll.
  • Check whether the subcontractor must be verified to HMRC. If a sub-contractor has not been included in the contractor's monthly CIS return in the tax year, or one of the two years before, the contractor must verify their details with HMRC.

Once all of the registration and verification processes are completed the contractor will deduct tax at source on any payments made to the subcontractor at one of the three tax rates listed below.

Each sub-contractor is then responsible for completing the same verification checks on any subsequent sub-contractors they engage with in the supply chain, e.g. Builder Recruitment.

Registering as a self-employed sub-contractor under CIS: Individuals must first decide what type of business they wish to operate through; Individual sole-trader, partnerships and Limited Companies can all register for the CIS scheme.

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There are 3 different levels of deduction which can be applied by a contractor sending money to a sub-contractor;

1) Gross Payment (no deduction made)

Subject to the sub-contractor being able to pass 3 qualifying tests and being registered for gross payment status with HMRC:

  • Business Test: Construction work is carried out in the UK and run largely through a bank account
  • Turnover Test: The business annual turnover exceeds a qualifying amount from £30K for sole traders
  • Compliance Test: No outstanding tax returns or payments due

2) 20% (excluding VAT and cost of materials or plant hire)

From any sub-contractor who is fully registered under this CIS scheme.

3) 30% (excluding VAT and cost of materials or plant hire)

From any sub-contractor who is not yet fully registered under the CIS scheme.

Contractors must provide sub-contractors with a CIS voucher or certificate confirming any deductions and submit CIS returns to HMRC at the end of each month.

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At the end of the financial year self-employed subcontractors need to submit a Self-Assessment tax return and company contractors a corporation tax return. HMRC will determine what tax or National Insurance is due and offset any CIS deductions made. This may also include allowable business expenses incurred. However, to claim a rebate of CIS tax payment, vouchers or certificates must be retained by the taxpayer as evidence of tax deducted. HMRC will not provide details of tax deducted so it is up to the sub-contractor to ensure that they retain this essential paperwork including expense receipts.

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HMRC operate an extremely tough penalty regime for those within the CIS scheme. Contractors need to ensure that they keep not only their books and records up to date but also that they are not late in submitting returns or making payments of CIS tax deducted.

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  • ~ Only available through view access enabled bank accounts. Excludes bank/ public holidays
  • † Specialist Advisors available six days a week, Monday to Friday, 8am-6pm and Saturday, 9am-1pm. Excludes bank/public holidays.
  • ^ Company incorporation fees may apply.