How CIS works
CIS sits on top of normal tax for the construction sector. When a contractor pays a subcontractor for construction work, it must (unless the subcontractor has gross payment status) deduct a percentage from the labour element and pay it to HMRC. That money counts as an advance towards the subcontractor’s eventual tax bill.
The deduction rates
- 20% — from a subcontractor registered for CIS
- 30% — from a subcontractor not registered
- 0% — subcontractors with gross payment status, paid in full
Deductions apply to labour only — the cost of materials is taken out before working out the deduction.
Contractor, subcontractor — or both
A limited company doing construction work for others is usually a subcontractor, having CIS deducted from its payments. If that company also pays other firms or individuals to do construction work, it’s a contractor too — and must register, verify subcontractors, make the right deductions, file monthly CIS returns and give deduction statements. Many construction companies wear both hats.
Gross payment status
Being paid in full, with no deduction, is far better for cash flow. To get gross payment status, a business must pass HMRC’s turnover, compliance and business tests — essentially proving it’s established and files and pays on time. Well worth applying for once you qualify.
Getting CIS right in your accounts
CIS deducted from your company is tax you’ve effectively already paid — it must be tracked and set against your PAYE/CIS bill, with any excess reclaimed. Handled loosely, companies lose refunds they’re owed. We run CIS for construction companies, both sides of it, alongside the accounts and payroll. Call 0114 327 1480.