Construction Industry Scheme (CIS)

Construction Industry Scheme (CIS)

1st Pay ensures compliance with legal requirements.

What is CIS?

CIS stands for Construction Industry Scheme. This term is commonly used in the construction industry to describe the system where contractors pay subcontractors for their services.

The CIS Payroll establishes the regulations that contractors must adhere to when paying their subcontractors for work. This scheme was developed by HM Revenue and Customs and is specific to the United Kingdom’s construction industry. Other countries and territories have their own rules governing construction and subcontractor payments.

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When a contractor is registered under this scheme, they are required to deduct a specific amount from the payments made to their subcontractors and then forward this amount to HM Revenue and Customs (HMRC). This deduction serves as an advance payment to cover the National Insurance and taxes that subcontractors are obligated to pay. The government implemented this scheme to prevent subcontractors from evading tax payments. Therefore, HMRC established this process to ensure that contractors withhold the necessary funds from subcontractor payments and use them to settle their tax liabilities.

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Traditionally, CIS Payroll applies to companies whose primary business model involves providing construction services, such as contracting companies. However, companies not in the construction industry may still need to comply with CIS Payroll requirements. The general rule is that if a company spends over £1 million annually on construction for three consecutive years, it must register under the scheme.

For example, if a banking company plans to build numerous new branches and office buildings over the next three years, a significant portion of its annual budget will be allocated to construction. As a result, CIS Payroll may classify them as contractors if they regularly hire subcontractors for these projects.

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Housing associations
Local authorities
Labour agencies
Other government agencies

A company that is heavily involved in the construction business must register with HM Revenue and Customs (HMRC). During the registration process, the company must specify whether they are registering as a contractor or a subcontractor. Additionally, they need to indicate whether they are operating as a self-employed person, a limited liability partnership, a company, or a partnership.

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To initiate your CIS application for the first time, you need to reach out to the HM Revenue and Customs Self-Employed line at 0300 200 3210. Inform them of your intent to become self-employed under the CIS Scheme. Subsequently, they will dispatch your Unique Taxpayers Reference (UTR) number via mail. To activate it, you'll then need to contact the CIS helpline as mentioned above.

For subcontractor registration, possessing a National Insurance number is essential. If you don't have one, please get in touch with the Department for Work and Pensions at Tel 0845 600 0643.

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