How does the Construction Industry Scheme (CIS) work?

CIS, short for Construction Industry Scheme was set up by HMRC to collect income tax throughout the year from those who carry out construction work.

Here’s how it all works…

Contractors deduct tax on behalf of their workers (subcontractors) and send the money directly to HMRC as tax payments. 

Whilst it is mandatory for contractors to register for CIS, this is a choice for subcontractors. They don’t have to but whether you’re registered for CIS or not determines the amount of tax you pay. 

If you register with CIS, you’ll pay 20% tax. If you’re not registered for with CIS, you’ll pay 30% tax. That’s a pretty massive difference! If that extra 10% has prompted you to register for CIS, you can find out how to do this here.

Have a look at our example of how CIS works:

Louie is a contractor. He hires John to carry out some construction work. John is a subcontractor. Every month John is owed a gross payment of £1,500 pounds for his work (gross payment is simply how much you make before taxes and other deductions).

As a CIS rule, contractors are required to ‘withhold’ taxes and pay subcontractors their net pay (earnings after tax is deducted). 

So Louie deducts £300 each month from John’s wages and pays him £1200. The deducted £300 is sent to HMRC. This will count as an ‘advance payment’ towards John’s income tax and national insurance contributions.

Louie also provides John with a CIS statement as proof of tax deductions. In the construction world, this is basically a payslip.

How do CIS refunds work?

Let’s have another look at John:

👉 Let’s say John’s annual income is £18,000:

👉 John owes HMRC exactly £2,370.20 – that’s £1,230 for income tax  and £1,015 for national insurance (in the 22/23 tax year) 🤓

👉 However, throughout the year he pays £3,600 in taxes (Yep, Louie’s made a mistake)

👉 John is now due a refund

HMRC will usually alert you automatically when you’ve paid too much or too little tax. Otherwise, you can claim a refund here.

Need to file your CIS tax return?

Well, it’s your lucky day! Get your CIS tax return filed by an accredited accountant. 

Our CIS accountants have specialist knowledge of construction worker taxes, including what expenses you can claim, how to maximise your profit, and more. They can even claim a CIS refund where due.

Find out more here.