Who is Exempt From CIS?

Tax is an inevitable challenge (and sometimes a hurdle) that every type of business has to face.

For those in the construction industry, this is the Construction Industry Scheme, known as CIS, is an additional element that needs to be navigated.

Being compliant with CIS is an essential requirement for every construction business, and the scope of the scheme is extremely far-reaching.

For example, most contractors and subcontractors are likely to be impacted by the Construction Industry Scheme in some way, but there are a few CIS exemptions that are worth being aware of.

A CIS exemption will allow you to receive all of the money you’re owed for a job to go into your pocket immediately without having to worry about losing some to tax at the front end. This is advantageous to those who are well-versed in filing their own tax returns and who would prefer to receive all of the money they have invoiced in the first instance.

While this is not always possible due to the restrictions that CIS and HMRC have implemented, it is still valuable to know the various CIS exempt activities and whether they apply to you.

The intricacies of the CIS system can be complicated and tricky to navigate, this is why the team here at Contractwise has put together this article explaining who is exempt from CIS.

This should provide you with all the information you need and guide you through the process.

Read on to learn more.

What is CIS?

Firstly, let’s establish exactly what the Construction Industry Scheme is and what it does.

CIS was originally created by HMRC in 1972 as a way to clamp down on tax avoidance within the construction industry - particularly in relation to the payment of contractors and subcontractors. This was at a time when cash was king and it was easier, for those who were minded, to game the system. In 2007 CIS received an update and the rules that were implemented then remain today.

CIS compliance is a legal requirement for all those working in the construction industry, so it’s important to have a thorough understanding of its rules.

Essentially, the scheme is a mandatory tax system that is bespoke to the construction industry. All contractors have to register for the scheme by law however for subcontractors it is optional. Following the completion of construction work and when it comes time for payment, registered subcontractors will see 20% of their earnings automatically deducted in the form of tax. For those subcontractors that are unregistered, 30% will be deducted. In some cases, subcontractors can apply for gross pay which will mean there is no deduction at all.

This system is different to the way most self-employed people file their taxes, which normally sees them paid everything upfront and they will then pay their taxes at a set future date. Instead, subcontractors in the construction industry use the CIS system to aid with their tax compliance.

Who counts as a contractor and subcontractor?

All contractors and most subcontractors will be registered with the CIS system, but to be fully au fait with how it works and before we consider exemptions, it is important to properly define what a subcontractor and subcontractor are.

What is a contractor?

A contractor is someone who pays subcontractors to carry out construction work on their behalf. This is different from employees who the contractor may have, as subcontractors are brought in to do specific jobs as opposed to working full-time for the contractor. This is because subcontractors typically do specific jobs and bespoke tasks that may not be required on every project.

As well as this definition, if you are a business that does not do construction work but has spent more than £3 million on construction projects over a 12 month period, you must also register as a contractor under CIS.

What is a subcontractor?

In contrast, a subcontractor is defined as someone who performs the work on behalf of a contractor. Usually, subcontractors are experts in a specific trade.

These include:

• Carpenters

• Concrete engineers

• Electricians

• Plumbers

• Stone masons

• Plasterers

• Brickies

• And much more

Subcontractors do not need to register with CIS, but those who don’t will lose 30% of their money to the scheme rather than 20% for those who are registered.

It’s extremely important to understand these definitions and, in particular, the distinction between subcontractors and employees. Confusing the two definitions could run the risk of reclassification which can be costly to your business. At Contractwise, we help to protect both contractors and subcontractors with our variety of CIS services.

What does CIS cover?

The Construction Industry Scheme impacts the payroll of all construction companies, and we provide payroll audits that are committed to ensuring you’re always complying with CIS rules.

The CIS system covers a wide range of construction work as well as other aspects of civil and building work. This will also include work that takes place on permanent or temporary buildings as well as work on public services like roads and bridges.

According to CIS, construction work includes:

• Site preparation

• Demolition and dismantling

• Building work

• Alterations, repairs and decorating

• Installing heating, lighting, power and water systems

• Cleaning buildings after construction has occurred

This means in the majority of cases, CIS deductions will be taken as part of the process.

What work is not covered by CIS?

However, it’s worth mentioning that there are certain construction jobs that are exempt from the scheme.

This includes the following:

• Architecture and surveying

• Scaffolding hire (as long as no labour is part of the service)

• Carpet fitters

• Delivering materials

• Work on construction sites that are not part of the construction, for instance, catering facilities.

We will go into further detail of CIS exemptions in the sections below, but it’s worth taking notice of these jobs that the scheme does not influence.

Who is exempt from CIS?

There are a few different CIS exemptions available.

First and foremost, if you’re conducting your work directly for the person who owns or lives in the building that requires your services, rather than a contractor, then you will not have to worry about CIS. Instead, you’ll simply work with the PAYE system. This means that you will invoice or bill the person directly and no CIS deductions will be taken.

There are also a few different types of work that are directly exempt from the scheme. This includes architecture, quantity surveying, structural engineering calculations, draughtsmen, scientists and more. However, it’s worth noting, that this only relates to consultative work rather than those who are actually carrying out the work or overseeing those that are doing so.

You will also be exempt from CIS deductions if you’re carrying out the work for an organisation that is not a construction company. The most common demographic that this impacts is landlords who may require significant amounts of construction work but whose primary occupation is in property. However, as previously mentioned, if the amount of work exceeds £3 million in a 12 month period then the exemption is no longer valid.

How to apply for CIS exemption

If you believe you are exempt from CIS, you will need to apply directly to HMRC.

There is a specific CIS phone line that you can ring to get help with this, and the process is fairly straightforward if you’re eligible. You will need to provide the following details:

• The construction work that will be provided

• Who will be doing the work

• Where the work will happen

• The cost of the work

However, if you do not meet the requirements then, as a subcontractor, you will have to decide whether to register for CIS or not.

Here at Contractwise, we support everyone in the construction industry, helping to ensure that you are always fully compliant with your CIS responsibilities. This includes conducting a completely free audit of your organisation and workforce, making sure everything is as it should be and that you always stay on the right side of HMRC. To find out more about what we do, get in touch with our team of CIS experts today.