We’ve put together this blog, “your ultimate guide to the Construction Industry Scheme” for all you builders and professional tradespeople out there. It explains what it is, how to register for it, and your tax position.
Let’s start with some positive news.
Throughout Sussex and the southeast, the sector in which you make your living is thriving. As you may know, this is a healthy factor in a growth-based economy. When we’re out and about, there are always construction projects on the go. Many are residential, but several commercial schemes are in development, too.
So, we hope that you’re a part of the success story. Or, that you soon will be if you’re starting out.
Is this You?
If you’re self-employed in any of the broad range of professions that cover the construction sector (we’ll list them below), you will already be familiar with the CIS – otherwise known as the Construction Industry Scheme.
However, it’s always worth confirming what the rules are.
What is the Construction Industry Scheme?
In a nutshell, it’s an additional aspect of tax that will most probably apply to you if you work in the construction sector.
The CIS is an HMRC initiative that they introduced in 1971.
Its objectives then were two-fold, as they are now: to address and reduce fraud and tax evasion levels in the industry. And, to help sub-contractors spread the cost of tax and National Insurance Contributions over the financial year.
Suppose you work for a contractor as a self-employed individual but NOT as an employee (ie you may be working for other contractors). In that case, the rules state that the contractor must withhold tax from you at the following percentages:
20% of the amount of your invoices if you are registered with the CIS scheme, or 30% if you have NOT registered
Quick heads-up: if you’re part of the scheme, you will still be accountable for your full tax and NI obligation to HMRC. Sorry, but it doesn’t mean you’ll pay less tax overall. Nevertheless, there’s a substantial benefit for you: HMRC sees these as advance payments towards your tax and NI bill, which in turn helps you spread out the costs.
As a sub-contractor, you may receive what look like payslip. Please be aware that they’re not. You are still self-employed. Importantly, you’re not entitled to any of the standard employment rights that go hand in hand with having a “job” and a “boss”.
Which One Are You?
A key part of your guide to the construction industry scheme raises the question of your employment status. It looks as if being employed and self-employed in this area industry are extremely similar in this type of work.
But again – they’re not.
Let’s clear up the confusion. In reality, it’s fairly straightforward:
If you work exclusively for ONE contractor, you will most likely be an employee rather than self-employed. Tax and NI will be deducted at source under PAYE. This will apply even if you work for them for a short period of time. This is the case even if you have a Unique Tax Reference (UTR) and/or you bring your own tools.
However, having a self-employed status in the construction sector – working for more than one contractor – means that the person who has given you the job will deduct either 20% or 30% in tax from each of your invoices.
And, as may be obvious, you won’t qualify for holidays or sick pay. The contractor must submit monthly returns to HMRC. These returns will have details of all payments made under the CIS in the past month. Failure to comply may incur some harsh penalties.
A few things to note, then:
- The contractor is legally obliged and fully responsible in deciding whether their workers are employed or self-employed.
- If your invoice includes direct expenses such as materials as a sub-contractor, you should be reimbursed directly for these – with no CIS deductions.
- If you supply your services directly to a homeowner, the CIS does NOT apply. You would invoice your customer directly, and submit your tax return as normal.
The Types of Work that Fall Under the CIS Scheme
- general building (bricklaying, plastering, roofing, etc)
- site clearing
- repairs and decorating
The Law States That..
If you are a contractor engaging other workers freelance, you must register for the CIS. In addition, he or she is obliged to check whether you are registered with HMRC, so they’ll need your UTR and your NI number.
If you are a sub-contractor, you may choose whether or not to do so.
You’ll still need to complete your normal Self-Assessment tax return. Required information will be your total sales income – the amount you’ve invoiced, not the sum you received after CIS deductions. Also, all details of business expenses, which will be deducted from your self-employed income.
Registering for the CIS
Ask the team here at Angel Bookkeeping about how best to do this, but here is the link to the relevant page: www.gov.uk
Setting this up with HMRC will be in addition to registering as self-employed.
VAT Registration and CIS
On March 2021, something called the VAT domestic reverse charge for building services came into effect.
Essentially, it means that if you are a sub-contractor in the CIS scheme who is registered for VAT, you don’t charge the VAT element to a contractor who is also VAT-registered. Instead, the contractor (not you) must account for this in their VAT return (That’s a lot of VATs in one paragraph, sorry).
Nevertheless, as a sub-contractor, you will need to record this on the invoice, and clearly state how much VAT is due under the reverse charge.
Important: Does VAT apply to you? Stop there. We recommend that you engage Angel Bookkeeping, not only to look after your financial records generally but also to take care of VAT registration. Not to mention the small print in this fine-detailed obligation under the CIS Scheme.
In summary, as part of your guide to the construction industry scheme, we think this: whilst fair, may be outside of your comfort zone if you’re starting out in the building trade. Even if you’re well-established, you may wish to focus on what you do best, rather than your numbers.
We hear you. Get in touch with us today. We have the experience and skills you need and are here to support you every step of the way.