Construction Industry Scheme

Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC).

About Construction Industry Scheme

Formations House recognises that cash flow and liquidity can be vital in the construction industry, and we’re delighted to offer a brand new product to very noticeably improve your cash flow. It is likely that you are already familiar with HMRC’s Construction Industry Scheme (CIS) – requiring contractors to make tax deductions when paying subcontractors. These deductions can be as large as 30% of the total payment due, and reclaiming the money is a small consolation when the loss of any cash flow can be devastating to a large portion of small business owners in construction.

What are my options?

Depending on the circumstances of your business it will either be possible to reduce the amount of pre-payment to HMRC (from 30% of the payment due to 20%), or it will be possible to apply for a total exemption.

Each application is assessed on its own merits but it is generally possible to apply for an exemption from the Construction Industry Scheme if:

  • All of the work was carried out in the UK
  • Annual turnover is £30,000 for sole traders, or £30,000 per director for limited companies
  • There are no outstanding issues with HMRC (e.g. late tax returns, or outstanding payments due)
Construction Industry Scheme £50

(excl. VAT)

  • CIS covers most construction work to:

    • a permanent or temporary building or structure
    • civil engineering work like roads and bridges

    For the purpose of CIS, construction work includes:

    • preparing the site, eg laying foundations and providing access works
    • demolition and dismantling
    • building work
    • alterations, repairs and decorating
    • installing systems for heating, lighting, power, water and ventilation
    • cleaning the inside of buildings after construction work
  • You don’t have to register if you only do certain jobs, including:

    • architecture and surveying
    • scaffolding hire (with no labour)
    • carpet fitting
    • making materials used in construction including plant and machinery
    • delivering materials
    • work on construction sites that’s clearly not construction, eg running a canteen or site facilities
  • Register as a contractor if either:

    • you pay subcontractors for construction work
    • your business doesn’t do construction work but you spend an average of more than £1 million a year on construction in any 3-year period

    Register as a subcontractor if you do construction work for a contractor.

    You must register as both if you fall under both categories.

Outside the UK?

The same CIS rules apply if your business is based outside the UK, but you do construction work as a contractor or subcontractor in the UK.