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You must register as a contractor with the Construction Industry Scheme (CIS) if:

• you pay subcontractors to do construction work
• your business does not do construction work but you have spent more than 拢3 million on construction in the 12 months since you made your first payment

You may be a sole trader, in a partnership or own a limited company.

If you鈥檙e not sure if you need to register, check who is covered by CIS.

Rules you must follow

1. You must register for CIS before you take on your first subcontractor.

2. You must check if you should employ the person instead of subcontracting the work. You may get a penalty if they should be an employee instead.

3. Check with HM Revenue and Customs (HMRC) that your subcontractors are registered with CIS.

4. When you pay subcontractors, you鈥檒l usually need to make deductions from their payments and pay the money to HMRC. Deductions count as advance payments towards the subcontractor鈥檚 tax and National Insurance bill.

5. You鈥檒l need to file monthly returns and keep full CIS records - you may get a penalty if you do not.

6. You must let HMRC know about any changes to your business.

The Construction Industry Scheme (CIS) covers most construction work to buildings, including site preparation, decorating and refurbishment.

Mainstream contractors

If your business is construction and you pay subcontractors for construction work, you鈥檙e a 鈥榤ainstream鈥� contractor. This applies if you鈥檙e a:

• builder
• labour agency
• gangmaster (or gang leader)
• property developer

Deemed contractors

You count as a 鈥榙eemed鈥� contractor if your business does not do construction work but you have spent more than 拢3 million on construction in the 12 months since you made your first payment. This could apply to:

• housing association or arm鈥檚 length management organisations (ALMOs)
• local authorities
• government departments

Exceptions for contractors

CIS does not apply if your work is:

• paid for by a charity or trust
• paid for by a governing body or head teacher of a maintained school on behalf of the local education authority
• on the subcontractor鈥檚 own property and worth less than 拢1,000 excluding materials - you must call the CIS helpline to get an exemption

CIS also does not apply if you鈥檙e a deemed contractor paying for:

• work on property (that is not for sale or rent) for your own business use
• a construction contract worth less than 拢1,000 excluding materials - you must call the CIS helpline to get an exemption

Construction work not covered by CIS

There are also certain jobs that are exempt from the scheme, including:

• architecture and surveying
• scaffolding hire (with no labour)
• carpet fitting
• delivering materials
• work on construction sites that is clearly not construction, for example running a canteen or site facilities

To register as a contractor, you need to follow the process for setting up as a new employer.

When done, you鈥檒l get a letter from HM Revenue and Customs (HMRC) with the information you need to start working as a Construction Industry Scheme (CIS) contractor, including your employer PAYE reference number.

You can check when to expect your employer PAYE reference number from HMRC.

Help with registering

If you need help, call the new employer helpline or the CIS helpline.

You can also sign up for webinars and emails or watch videos from HMRC about CIS.

Before you can pay a new subcontractor, you鈥檒l need to 鈥榲erify鈥� them with HM Revenue and Customs (HMRC).

HMRC will tell you:

• whether they鈥檙e registered for the Construction Industry Scheme (CIS)
• what rate of deduction to use or if you can pay them without making deductions

How to verify

You can verify subcontractors using:

• the free HMRC CIS online service
• commercial CIS software

If you need to verify more than 50 subcontractors you鈥檒l need to use commercial CIS software.

What you鈥檒l need

Make sure you have:

• your Unique Taxpayer Reference (UTR)
• the reference number for your HMRC accounts office
• your HMRC employer reference

You鈥檒l also need your subcontractor鈥檚:

• UTR
• National Insurance number if they鈥檙e a sole trader - you cannot verify temporary numbers, which start with 鈥楾N鈥� or 2 digits
• company name, company UTR and registration number if they鈥檙e a limited company
• nominated partner details, trading name and partnership UTR if they鈥檙e a partnership

The details you provide to verify the subcontractor must exactly match the details the subcontractor used to register with HMRC.

When you pay a subcontractor, you usually make some deductions from their payments.

HM Revenue and Customs (HMRC) will tell you how much to deduct from a subcontractor鈥檚 payments when you verify them.

The Construction Industry Scheme (CIS) deduction rates are:

• 20% for registered subcontractors
• 30% for unregistered subcontractors
• 0% if the subcontractor has 鈥榞ross payment鈥� status - for example they do not have deductions made

You must pay these deductions to HMRC - they count as advance payments towards the subcontractor鈥檚 tax and National Insurance bill.

How to make a CIS deduction

To make a CIS deduction from a subcontractor鈥檚 payment, start with the total (gross) amount of the subcontractor鈥檚 invoice.

Take away the amount the subcontractor has paid for:

• VAT
• equipment which is now unusable (鈥榗onsumable stores鈥�)
• fuel used, except for travelling
• equipment hired for this job (鈥榩lant hire鈥�)
• manufacturing or prefabricating materials
• materials (only if they paid for them directly)

Finally, deduct the CIS percentage rate (as given to you by HMRC) from the amount left. You鈥檒l be left with the net amount you need to pay the subcontractor.

Paying subcontractors

You usually pay your subcontractors directly. But you can pay them through a third party (such as a relative or debt company) if they ask you to.

If you make deductions, you must give the subcontractor a payment and deduction statement within 14 days of the end of each tax month.

If you鈥檙e not making payments

If you know you鈥檙e not going to make any payments to subcontractors for up to 6 months, you can ask for your scheme to be made 鈥榠nactive鈥�. HMRC will not send you any returns for that period.

You must file a return when you start paying subcontractors again.

You must pay HM Revenue and Customs (HMRC) any deductions you鈥檝e made.

HMRC will set up a Construction Industry Scheme (CIS) payment scheme for you when you register as a contractor.

If you already have employees, HMRC will change your existing PAYE Scheme to a PAYE/CIS scheme. You should make one payment each month or quarter to cover your PAYE tax, National Insurance and CIS deductions.

When and how to pay

Pay HMRC every month by the 22nd (or the 19th if you鈥檙e paying by post). You may be charged interest and penalties if you pay late.

Pay CIS deductions to HMRC in the same way as PAYE and National Insurance payments.

You must tell HM Revenue and Customs (HMRC) each month about payments you鈥檝e made to subcontractors through your monthly return.

You can file returns by using:

• the HMRC CIS online service
• some commercial CIS software

On your return, you must declare that the subcontractors listed are not employees.

If you made no payments

You do not have to file a return for the months when you made no payments to subcontractors, but you must tell HMRC:鈥�

• that no return is due for these months
• if you start using subcontractors again after you鈥檝e temporarily stopped using them
• if you want to make an inactivity request because you鈥檝e temporarily stopped using subcontractors - this lasts for 6 months

You can use the CIS online service to tell HMRC.

If you cannot use the CIS online service, you can tell HMRC by phone or post.

Using commercial CIS software

Your return must not include any negative values if you鈥檙e using commercial CIS software.

If any entries come to less than 0, you should put 鈥�0鈥� instead.

HMRC might ask you later to give details of any entries you鈥檝e replaced.

Deadlines

Send your monthly returns to HMRC by the 19th of every month following the last tax month.

Penalties for late returns

You鈥檒l get a penalty if you miss the deadline for filing returns.

Pay your late filing penalty.

If you disagree with a penalty

You can appeal within 30 days of the date on the penalty notice:

• through - you can also track the progress of your appeal through the service
• by writing to tell HMRC - quote your Unique Taxpayer Reference (UTR) and the payment reference shown on the notice

You cannot appeal over the phone.

Correcting or changing returns

Use the HMRC CIS online service to change or correct something on your return.

Tell HMRC by calling the CIS helpline if you need any help with this.

Under the Construction Industry Scheme (CIS), you must keep records of:

• the gross amount of each payment invoiced by subcontractors, excluding VAT
• any deductions you鈥檝e made from subcontractor payments

If you made deductions, you must also keep records of the costs of materials the subcontractor invoiced you for, excluding VAT.

Keep these details for at least 3 years after the end of the tax year they relate to. HM Revenue and Customs (HMRC) could ask to see your CIS records at any time.

You must tell HM Revenue and Customs (HMRC) if:

• you change address (as an individual or business)
• you change your business structure - for example from sole trader to limited company or vice versa
• a contractor dies
• you鈥檙e a multiple contractor and you take on another contractor鈥檚 business - you must tell HMRC within 90 days

If you stop trading or using subcontractors

You must:

• tell HMRC
• stop filing monthly CIS reports

Do this even if you鈥檝e stopped using subcontractors temporarily, for example because you鈥檙e using your own employees to carry out work.

If you鈥檝e temporarily stopped using subcontractors

You can tell HMRC if you want to make an 鈥榠nactivity request鈥� if you鈥檝e temporarily stopped using subcontractors. This lasts for 6 months.

You must tell HMRC if you start using subcontractors again.