What is CIS (Construction Industry Scheme)?

What is the Construction Industry Scheme (CIS)?

CIS is the Construction Industry Scheme set up by HMRC to collect income tax throughout the year from people working in the construction industry. Construction companies deduct 20-30% from the payments they make to their workers (subcontractors) and send the money to HMRC as tax payments.

20% is subtracted for workers who have registered themselves as subcontractors with HMRC and 30% for those who have not. So it is generally a good idea to register for CIS.

The scheme was set up to tackle tax avoidance in the construction industry in 1970s. However as result most construction workers now end up over-paying their income tax because these tax payments don't take into account the workers personal tax allowance or the work expenses that can be subtracted from tax payments, such as equipment, travel costs or tools.

Note that CIS applies only if you work in construction as a sub-contractor (either registered as self employed or as a limited company).

How Does CIS work?

Example: Big Woodworks Ltd hires John Carpenter on their site as a subcontractor. Every month John is owed £1500 pounds for his work.

  1. Every month the company pays £300 (20% of the £1500) to HMRC as John's taxes
  2. The company sends a CIS statement/Payslip to John as proof that £300 was paid to HMRC
  3. The company pays the remaining £1200 to John as payment for his work

How CIS refunds work?

In the example above John's annual income was £18,000 (£1500 * 12).

This means John owes HMRC £2370.20 (£1230 Income tax + £1015 national insurance). However over the course of the year Big Woordworks Ltd paid £3600 in taxes on John's behalf! This means John is due a refund.

cis_refund.PNG

You can see the refunds due for other examples using our CIS rebate calculator.

For the self employed, the CIS refunds are handled through the annual self assessment return. HMRC will pay back the tax owed, normally a few weeks after the self assessment is filed.

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