We spell out Construction Industry Scheme rather than writing CIS and moving on, because the three letters hide what it is. It is a set of rules about money being held back from payments for construction work, and about who has to tell HMRC what each month.
The deduction, and why the rate changes
GOV.UK's wording for a subcontractor is: “Under CIS, a contractor must deduct 20% from your payments and pass it to HM Revenue and Customs.” And then: “If you do not register for the scheme, contractors must deduct 30% from your payments instead.”
The detail underneath that matters. GOV.UK says the standard 20% rate applies if both of two things are true: you are registered for the scheme, and the contractor can verify you. If either does not apply, the deduction is taken at the higher rate of 30%.
So the 10% difference is not a judgement anybody is making about the work. It is a registration-and-verification question, and it is the cheapest thing on this page to fix.
Gross payment status
GOV.UK: if you do not want deductions to be taken in advance by contractors, you can apply for gross payment status, which means “contractors will pay you in full, without deductions”. It also notes that the way you pay tax is different if you have it.
It changes your cash flow rather than your tax bill, and it moves the responsibility for getting the tax right back onto you.
If you are the contractor
GOV.UK is clear that contractors must register for the scheme, while subcontractors do not have to. They just get deducted at the higher rate if they have not. It also sets out that you must register as a contractor if you pay subcontractors to do construction work, or if your business does not do construction work but you have spent more than £3 million on construction in the 12 months since you made your first payment.
The monthly duties, per the contractor guidance, are:
- register before you take on your first subcontractor
- check whether the people you are paying should be subcontractors at all. GOV.UK warns you may get a penalty if somebody should be an employee instead
- check with HMRC that your subcontractors are registered
- make the deductions and pay the subcontractors
- file monthly returns. GOV.UK notes you may get a penalty if you do not
Who has to register as what
GOV.UK separates the two roles and it is common to be both. You register as a contractor if you pay subcontractors for construction work. You register as a subcontractor if you do construction work for a contractor. And, in its own words, “you must register as both if you fall under both categories”.
Plenty of small construction businesses are in exactly that position, taking on a subcontractor for one job while working under somebody else on the next, and the two sets of duties run at the same time.
What counts as construction work
Wider than people expect. GOV.UK says the scheme covers most construction work to a permanent or temporary building or structure, and civil engineering work like roads and bridges, and that construction work includes preparing the site, demolition and dismantling, alterations, repairs and decorating, installing systems for heating, lighting, power, water and ventilation, and cleaning the inside of buildings after construction work.
Some jobs are outside it. GOV.UK's examples include architecture and surveying, and scaffolding hire with no labour.
What we would do about it
For a subcontractor, check the registration and verification first: that is where the 30% comes from. For a contractor, the monthly return is the thing that has to be reliable, because it is the one with a penalty attached to every late month.
Rates and rules change. Check the GOV.UK pages below before acting on anything above.