Making payments and getting paid under CIS
In this section:
- Getting paid and paying tax - advice for subcontractors
- Paying subcontractors - advice for contractors
- How to pay CIS deductions to HMRC if you're a contractor
- Using CIS Online
- Correcting monthly return and payment errors
Getting paid and paying tax - advice for subcontractors
The Construction Industry Scheme (CIS) sets out the rules for contractors when they pay subcontractors for construction work. This guide explains what you need to do if you're a subcontractor to make sure you get paid correctly when you work for a contractor. It also explains how the contractor will work out your pay.
On this page:
- The first steps to getting paid under CIS
- Payments under CIS - gross or under deduction
- Nominating someone else to receive payment
The first steps to getting paid under CIS
Under CIS, contractors may have to 'verify' the subcontractors who work for them. This means checking your payment status with HM Revenue & Customs (HMRC) so they can pay you the right amount.
When you get a contract to do work covered by CIS, you'll need to register with the scheme as soon as possible, if you're not already registered. The information we'll need to register you depends on whether you're a sole trader, a partnership, or a company but generally, it will include your name, your business name, your business address and other details about your business.
You can also ask us to record one trading name.
You'll need to give similar details to the contractor as well. When they contact us to verify you, we'll match up the information you've given them with the details you gave us.
If you don't register - or if we can't verify you because you haven't given the contractor the correct details about yourself - you could end up with a deduction from your payments made at the higher rate.
Payments under CIS - gross or under deduction
Under CIS, there are two ways of paying subcontractors - gross or under deduction.
If you are registered for gross payment, the contractor pays you in full without any deduction. So you'll need to pay tax and National Insurance contributions (NICs) on this amount later through your tax return.
If you are registered for payment under deduction, the contractor takes off an amount (currently 20 per cent) before they pay you and they must pay this over to us. You'll still need to pay tax and NICs on your payments later through your tax return, but we will set any deductions that have already been made from your payments against this bill.
Find out about paying Self Assessment tax if you're self-employed
Find out about how to pay tax to HMRC
Find out about paying Corporation Tax if you operate as a company
Who can receive gross payments under CIS?
If you run a business that meets certain conditions, you can ask us to register you for gross payment. Your business must:
- do construction work in the UK and be run largely through a bank account
- have a construction turnover, excluding VAT and the cost of materials, of at least £30,000 each year (more for partnerships and most companies)
- have complied with all its tax obligations
Before we can grant you gross payment status so you can get paid with no deductions, you'll need to show us that your business passes three tests.
Business test
You'll need to show us that your business:
- carries out construction work - or provides labour for construction work - in the UK
- is run largely through a bank account
Turnover test
We'll look at your business turnover from construction work for the 12 months before you apply for gross payment status. Ignoring VAT and the cost of materials, your construction turnover must be at least:
- £30,000 if you're a sole-trader
- £30,000 for each partner in a partnership, or at least £200,000 for the whole partnership
- £30,000 for each director of a company, or at least £200,000 for the whole company
If five people or fewer control your company, it must have an annual construction turnover of at least £30,000 for each of these individuals.
Compliance test
You and any directors or partners in the business must have submitted all tax returns and paid all tax due on time in the 12 months before your application. If we've asked for any information about your tax affairs in that period, you'll need to have given it to us.
You're allowed a few lapses or late payments in the 12 months. You can be:
- up to 28 days late for three CIS contractor returns
- up to 14 days late paying over three lots of CIS or PAYE (Pay As You Earn) deductions if you are also an employer or contractor
- up to 28 days late paying Self Assessment tax
- up to 28 days late paying Corporation Tax
- late making your end of year PAYE return, provided it has been received
- late making your Self Assessment return, provided it has been received
If we agree that you can be paid gross, you must declare your payments in your tax return at the end of the tax year.
If you are paid gross you may be subject to something called a Tax Treatment Qualification Test (TTQT) also known as a Scheduled Review. HMRC may check that you still qualify for gross tax payment.
Obtain CIS343 Applying to be paid gross - advice for subcontractors (PDF 35K)
Find out about paying Self Assessment tax if you're self-employed
Receiving CIS payments under deduction
If you don't qualify for gross payments, your contractor will make a deduction on account of your tax and NICs before they pay you. The standard deduction rate of 20 per cent applies if you've registered for CIS and the contractor's verified your details successfully.
If you haven't registered for CIS or the contractor couldn't verify you, they'll have to make deductions at the higher rate of 30 per cent. You can claim credit for these deductions through your annual tax return.
Subsistence and travelling expenses count as pay, so they'll be liable for deductions too. But VAT, the cost of materials and certain other costs like plant hire don't count as pay, so the contractor will exclude them when they work out how much to deduct.
At the end of the financial year, you'll need to complete a tax return. We'll work out your tax and NICs bill and set any deductions you've had made against it. This will show whether you're due a refund or you need to make further payments. If you're paid under deduction, make sure your contractor gives you monthly statements of payments and deductions. You could ask them for these if you get paid gross, too. Keep these statements to help you fill in your tax return.
Read about the basics of Self Assessment
Complete your Self Assessment tax return online
Nominating someone else to receive payment
If you choose someone else to receive payments on your behalf - like a gang member, workmate, relative or debt factor - they should also register with us. This person is called your 'nominee'. If you're registered to be paid gross, the contractor will pay your nominee gross as long as the nominee is registered for gross. But if they're not, they'll be paid under deduction - even if you're registered to be paid gross.
Payments under CIS if a subcontractor dies
If a subcontractor dies, their personal representatives will receive any outstanding payments due. If the subcontractor was registered to be paid gross, their personal representatives will be paid gross too. If a liquidator, receiver or administrator is dealing with the subcontractor's company affairs, any outstanding payments will be made according to the company's tax status.
