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The Construction Industry Scheme (CIS) is a set of rules for contractors and subcontractors in the construction industry. If you're a CIS contractor (including a deemed contractor), you'll need to register with HM Revenue & Customs (HMRC). You'll also have to follow certain rules to make sure you pay your subcontractors within the scheme correctly.
The things you'll need to do include:
This guide will help you understand your responsibilities and obligations under CIS if you're a contractor or deemed contractor. It explains when and how to register for CIS, and how to go about following the CIS rules. It also provides links to further guidance on deemed contractor status.
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All contractors covered by CIS need to register with HMRC. If you're a contractor under CIS you'll need to register with them before you take on your first subcontractor.
CIS uses special definitions of the terms contractor and subcontractor. So HMRC might treat you as a contractor who needs to register even if you don't normally think of yourself as one.
To register as a contractor you follow the process for setting up as a new employer. You may be able to use HMRC’s online tax registration service for new employers. To find out how to register follow the link below. This will give HMRC all the information that they need to register you as a contractor and employer if necessary.
If you're a non UK-resident business, you can register by contacting HMRC's Centre for Non-Residents on Tel +44 151 210 2222
If you register online the details you'll need depend on the type of business you're registering, but they'll include things like:
Make sure you show that you're going to be engaging subcontractors in the construction industry.
HMRC will set up a contractor scheme for your business - and a PAYE (Pay As you Earn) scheme if you asked for one - and send you a contractor's pack. The pack contains all the information and forms you'll need to start working as a CIS contractor.
Before you can pay an individual for work they do under CIS, you'll need to confirm they're properly self-employed and not an employee. You may also need to verify them with HMRC.
CIS only covers self-employed workers - it doesn't cover employees. So before you pay an individual under CIS you'll need to make sure you haven't engaged them under a 'contract of employment'. Employment status is covered by general law and depends on the terms of your agreement with the worker.
HMRC has guidance on employment status and a status indicator tool you can use on their website.
You may need to 'verify' a subcontractor with HMRC before you first pay them. This means checking whether they are registered with HMRC, so that they can tell you how to pay them - gross or after making a deduction from their payment.
Generally, if you haven't previously engaged the subcontractor or paid them in the recent past, then you'll need to verify them before you pay them.
Depending on the system you use for CIS, you can verify a subcontractor by:
You can access the CIS Online service through HMRC's website. You'll need to register for CIS Online for contractors if you haven't already.
Third party CIS software is an alternative to HMRC's free online service. HMRC check CIS software to ensure it can work with their own systems. HMRC lists the ones that can on their website.
EDI is suitable for large contractors who need to verify a lot of subcontractors each month. You'll need to register to use EDI if you haven't already.
However you verify your subcontractors, you'll need to have certain details about them - and about your own business - to hand.
When HMRC verify your subcontractor they will tell you how to pay them. This could be:
HMRC will tell you to pay a subcontractor gross if they're registered with them to get gross payments.
If the subcontractor's not registered for gross payments, HMRC will tell you to make a deduction from their payment at the standard rate as long as they can verify them. If HMRC can’t match the details you gave them with their own records, they will give you a special verification reference and tell you to make a deduction at the higher rate.
If HMRC tell you to make a deduction before you pay a subcontractor you'll need to work out how much to deduct.
You can read more details about how to make deductions correctly in HMRC's guide to paying subcontractors under CIS.
You must pay over to HMRC any deductions you make from your subcontractors' payments. You can find out about paying over deductions to HMRC in their guide to paying subcontractors under CIS.
As a CIS contractor you are obliged to complete some paperwork whenever you pay subcontractors. The quickest and easiest way to do this is electronically but you can also post your paperwork to HMRC.
Whenever you make a deduction from a subcontractor's payments you must give them a written payment and deduction statement. You can either do this for each tax month or with each payment if this is more frequent. Each statement must include certain details about your business, their business, the payment you made and the amount you deducted.
You can read more about issuing deduction statements in HMRC's guide to paying subcontractors under CIS.
Each month you'll need to send a monthly return to HMRC. This tells HMRC about the payments you've made to all your subcontractors - and any deductions you've made from them. If you haven't made any payments, you'll have to make a 'nil return' to let HMRC know.
The quickest and easiest way to submit your return is electronically - using HMRC’s CIS Online service, third party software or EDI.
You can find out how to use the online service in HMRC’s guide to CIS Online.
You can read more about how to make your contractor returns in HMRC’s guide on monthly returns under CIS.
HMRC expects contractors to keep certain records. You'll need to keep details of:
HMRC will check these records from time to time - just like they check employers' PAYE records.
You must keep your records for at least three years after the end of the tax year they're for. If HMRC ask to see them you'll need to make them available and provide any facilities they need to look at them. HMRC may ask you for full sized copies.
You can archive your records on an imaging system like microfiche as long as you keep an unchanged image of the originals.