CIS Contractors

The scope of the Construction Industry Scheme is very wide including repairs, groundwork and decorating in addition to new building and construction work.

The key point is that all business to business payments for construction work need to be made under the scheme. Work for private householders is excluded from the scheme.

Example:

Derek is a builder. He normally works on private houses. He has been asked to install a new kitchen for Mr Abbott. Derek asks Timothy, an electrician, to help him with the work. Both Derek and Timothy are registered with HMRC as self-employed workers.

The work is completed and Derek charges Mr Abbott £7,500. Derek then pays Timothy £1,500 for the electrical work.

The £7,500 from Mr Abbott is outside the Construction Industry Scheme (CIS) as Mr Abbott is a private householder. But the £1,500 paid by Derek to Timothy (a business to business payment) is covered by the scheme.

Derek must register with HMRC as a CIS contractor before making the payment to Timothy. Timothy should register under CIS as a subcontractor before working for Derek on this job.

To register they need to phone the CIS helpline (contractors may also or register on-line through the HMRC website).  

If Derek fails to register as a contractor, there will be penalties to pay. If Timothy fails to register as a subcontractor under the CIS scheme, Derek will have to deduct 30% tax from the £1,500 he pays to Timothy (so Timothy only receives £1,050). Timothy will still need to submit a tax return and should register under CIS as a subcontractor.