Construction Industry Scheme (CIS) Explained.

CIS (the Construction Industry Scheme) is HMRC's system for tax on building work. When a contractor pays a subcontractor, they take some money off and send it to HMRC. That money counts towards the subcontractor's tax and National Insurance.

• Registered subcontractors usually have 20% taken off.
• Unregistered subcontractors have 30% taken off.
• Subcontractors with gross payment status have nothing taken off.

CIS isn't a business structure, and being registered doesn't prove you're self employed.

• Contractor: a business that pays someone else to do building work.
• Subcontractor: someone who does building work for a contractor.
• Deduction: the money the contractor keeps back from your pay and sends to HMRC for you.
• Gross payment status: HMRC approval to be paid in full, with nothing taken off. You have to qualify and keep qualifying.
• Verify: the check a contractor does with HMRC before paying a subcontractor, which tells them the rate to use.
• Payment and deduction statement: the paper or email a contractor gives you showing what they paid you and took off.
• Monthly return: the form a contractor sends HMRC each month listing payments to subcontractors.
• Tax month: CIS months run from the 6th of one month to the 5th of the next.

You can be either, or both:

• Contractor: you pay subcontractors for building work, and have contractor duties.
• Subcontractor: you do building work for a contractor.
• Both: you get CIS payments and pay subcontractors too.

Far more than new builds. HMRC includes most building work: site prep, demolition, building, alterations, repairs, decorating, and installing heating, lighting, power, water or ventilation. Some work isn't covered.

Don't decide from a job title. Check the actual work against HMRC's guidance.

HMRC's rates are 20% for registered subcontractors, 30% for unregistered ones, and 0% for those with gross payment status. The contractor checks you with HMRC (verifies you), and HMRC tells them which rate to use.

It's not a percentage of the whole invoice. VAT and the materials you paid for are taken off first, then the rate is worked out on what's left.

1. Register for CIS. You don't have to, but if you don't, 30% gets taken instead of 20%.
2. Keep every payment and deduction statement. Contractors must give you one within 14 days of the end of each tax month.
3. Match them to your invoices and bank. Check the right amount was taken off.
4. Put them on your tax return. CIS deductions are tax paid in advance, not your final bill. You may get some back, or owe more.

1. Register as a contractor with HMRC.
2. Check whether each worker is actually self employed, not an employee.
3. Verify each subcontractor with HMRC before you pay them.
4. Take off the right amount, and give a payment and deduction statement within 14 days of the end of each tax month.
5. Send your monthly return by the 19th, two weeks after each tax month ends (so by 19 June for the tax month ending 5 June), and pay HMRC what you took off. If you paid no subcontractors, send a nil return or tell HMRC you've stopped for now.

Late returns cost money: £100 at 1 day late, £200 at 2 months, then £300 or 5% of the deductions (whichever is higher) at 6 and 12 months. They still apply when you're flat out on site.