Tax can be a complicated issue for businesses of all types. Whether you are a sole trader or own a large company and you operate in the construction industry you cannot get away from the Construction Industry Scheme. However, there are some CIS scheme exemptions that you should be aware of.
What is the Construction Industry Scheme (CIS)?
The HMRC Construction Industry Scheme was first introduced as a tax evasion prevention measure in 1972, and an updated CIS came into effect in 2007.
The key elements of the scheme are, if you are a contractor employing a subcontractor, you must deduct the tax for payments and pay them directly to the HMRC. These CIS tax payments contribute to the subcontractor’s overall tax and National Insurance bill for the year.
To put it simply, if you are a bricklayer, for example, and you are employed by a construction company to carry out work on a project, your payment for the job will have the tax deducted before it is paid into your bank account.
Who is covered by CIS?
CIS covers both contractors and subcontractors operating in the construction industry within the UK.
This includes sole traders, partnerships and limited companies. Other organisations such as local authorities, housing associations and property developers are also obligated to CIS if they have an annual spend of more than £1 million over 3 years.
The CIS rules only apply to payments made by contractors to subcontractors and not employees who work directly for the contractor.
The type of work covered under CIS includes:
- Demolition and construction
- Site preparation for a construction project
- Alterations and dismantling
- Repairs and decorating
CIS does not affect construction work carried out beyond the UK in another country. If a non-UK business carries out construction work in the UK, however, they must register for CIS.
CIS Scheme exemptions for contractors
CIS does not apply if your work is:
- Paid for by a charity or trust
- Paid for by a governing body or head teacher of a maintained school on behalf of the local education authority
- On the subcontractor’s own property and worth less than £1,000 excluding materials – you must call the CIS helplineto get an exemption
CIS also does not apply if you’re a deemed contractor paying for:
- Work on property (that is not for sale or rent) for your own business use
- A construction contract worth less than £1,000 excluding materials – you must call the CIS helplineto get an exemption
Construction work not covered by CIS
There are also certain jobs that are exempt from the scheme, including:
- Architecture and surveying
- Scaffolding hire (with no labour)
- Carpet fitting
- Delivering materials
- Work on construction sites that is clearly not construction, for example running a canteen or site facilities
How can Sapphire help?
If you’re registered under the Construction Industry Scheme, or would like to know if you should be please get in touch. The Sapphire team are experienced and fully compliant providing support for thousands of clients using the Construction Industry Scheme. You can be safe in the knowledge that we will ensure the correct CIS deductions are calculated and paid to HMRC each month so there won’t be any surprising tax bills. We will also process your expenses for any job materials and provide you with a statement of earnings.
