Frequently Asked Questions

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CIS payroll is a broad term encompassing payments made to self-employed subcontractors within HMRC's Construction Industry Scheme, typically involving day-rate sole traders.

By law, subcontractors are not mandated to register. However, if they remain unregistered, their contractor is obligated to deduct payments from them at an increased rate. While the standard deduction rate is 20%, it rises to 30% if the subcontractor is not recognised by HMRC.

If we are discussing a self-employed construction worker in the UK, payments made to a sole trader will undergo CIS deduction if the paying entity is mandated to operate within the CIS. Conversely, if the worker is engaged by an end client whose primary business is not construction, he will not be subject to CIS deductions.

Yes, as long as they are operating within the guidelines set by the CIS! These regulations apply to all working entities, including limited companies, partnerships, or sole traders. The only exceptions are charities, charitable trusts, and the governing bodies or head teachers of maintained schools.

Yes, registration is mandatory for all contractors operating within the specified parameters of the scheme. However, sub-contractors are not obligated to register. If subcontractors are not recognized by HMRC, deductions are applied at an elevated rate of 30%, as opposed to the standard 20%.

In general, all construction activities related to buildings or land fall under the purview of the Construction Industry Scheme (CIS), with only a few exceptions or anomalies. The following list, extracted directly from HMRC's guide, outlines operations that are considered within the CIS:

  • Demolition, including buildings, structures, and tree-felling.
  • Site preparation and clearance, earth-moving, excavation, tunnelling, and boring.
  • Foundation preparation, piling, and laying.
  • Construction, alteration, or repair of permanent or temporary structures, industrial engineering work, or industrial plant, such as asbestos removal, storage tanks, silos, pylons, cranes, derricks, pumps, site facilities (e.g., huts, portable buildings, hoardings), power lines, pipelines, gas mains, sewers, drainage, cable television, and telecommunications systems.
  • Installation of closed-circuit television for non-security purposes (e.g., traffic management).
  • Provision of public services.
  • Construction, repair, and resurfacing of roads and bridges, including white-lining.
  • Temporary and permanent roadway provision and other access works.
  • Erection or dismantling of scaffolding, falsework, and formwork.
  • Plant hire with an operator for on-site use.
  • Installation of fire protection systems for building fabric protection (e.g., sprinkler systems, fireproof cladding) rather than fire warning systems.
  • Installation of prefabricated components or equipment under 'supply and fix' arrangements.
  • On-site material transport.
  • Internal cleaning of buildings and structures during or after construction, alteration, extension, repair, or restoration.
  • Work on installations (e.g., rigs, pipelines, construction platforms) intended for underwater mineral exploration or exploitation within UK territorial waters (up to the 12-mile limit).
  • Installation of systems for heating, lighting, air-conditioning, ventilation, power supply, distribution, drainage, sanitation, water supply, distribution, and fire protection.
  • Installation of lifts, plant, or machinery specified for a building under construction or alteration.
  • Construction and repair of industrial plants.
  • Site restoration and landscaping.
  • Installation, structural repair, and painting of lamp standards, traffic lights, parking meters, and street furniture.
  • Construction of concrete and marble floors.
  • Installation and repair of glazing, doors, rolling grills or security shutters, kitchens, bathrooms, shop-fittings (excluding seating and freestanding display cabinets), and painting and decorating internal or external surfaces of buildings or structures.

Yes, if operating within the industry sectors specified by the Construction Industry Scheme.

When discussing an Employment Status Review, we are referring to the aspect of a tax audit that specifically examines how you assess the employment status of self-employed subcontractors you hire. This evaluation typically occurs as part of a broader review of your overall compliance with various tax obligations, such as CIS reporting, PAYE, Director remuneration, and more.

HMRC adopts a straightforward perspective. If you regularly engage self-employed subcontractors without a written contract, provide the majority of the plant, equipment, and materials, pay them a day or fixed rate, and the subcontractor cannot demonstrate the ability to incur losses or maintain an active portfolio of other clients, HMRC is highly likely to reclassify them as your employees. This reclassification would make you responsible for any unpaid tax, National Insurance contributions, and may incur penalties.

The construction industry uniquely operates under its own tax framework known as the Construction Industry Scheme (CIS). This distinctive tax regime is in place because HMRC perceives the industry as a consistent area where taxation is often lost or left unpaid. The regulations under CIS are designed to compel the industry to fulfil its tax obligations.

All construction industry contractors are mandated by law to register with the Construction Industry Scheme (CIS). Before making payments for construction services, contractors must validate the legitimacy of any subcontractors with HMRC and report all such payments to HMRC every month.

The law further stipulates that contractors must make deductions, potentially up to 30%, from the subcontractor's payment and remit this deduction to HMRC on behalf of the sub-contractor, serving as an "on-account" payment towards their annual self-employed tax liability. Additionally, contractors are obligated to maintain thorough records and furnish sub-contractors with a deduction statement. Failure of sub-contractors to register with the scheme will result in automatic deductions at the higher 30% rate.

You could potentially be invoiced for the employer's National Insurance contributions that HMRC calculates you owe, along with late penalties and interest. Moreover, HMRC would anticipate you to hire all your subcontractors moving forward. The increased payroll burden of employing instead of subcontracting is generally estimated to result in up to a 40% rise in payroll costs.

This encompasses factors like employer's National Insurance costs, holiday pay, added expenses for PAYE and the administration of Employment Rights legislation, rising pension contributions, and employee benefits and leave entitlements. Not included in this estimate are any additional costs arising from the diminished flexibility to adjust your workforce according to workload and the heightened earnings expectations of the previously self-employed subcontractors.

Contractors operating in specific segments of the construction industry are legally required to register with the CIS. While it's not mandatory for individuals opting for self-employment in the construction industry to register under the CIS, failure to do so results in a higher deduction rate of 30% from your earnings by your contractor, as opposed to the standard 20%.

Subcontractors are entitled to receive a monthly payment deduction statement from their contractor and must complete an annual self-assessment for tax purposes.

There is no difference; a self-employed individual in the construction industry typically receives payment through the Construction Industry Scheme (CIS).

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