Both contractors and subcontractors working in the construction sector are subject to Construction Industry Scheme CIS, which means they register under the scheme and make tax payments through self assessment, although with some exemptions for subcontractors.
This article gives them a complete guide to CIS registration, covering who are required to register for CIS and why they should register, requirements for the registration, step-by-step process for online registration, registration process via phone, and how long it takes for them to apply under the scheme.
Who are Required for CIS Registration?
HM Revenue and Customs considers individuals or companies as a building contractor when they hire self-employed workers for a construction project (e.g., scaffolding hire, establishment constructions, building work alterations, repairs, demolitions, construction sites clearing, and decorating installing systems). Before they set out any construction work, they are obliged to register for CIS and fulfil other requirements, such as giving copies of CIS payment and deduction statements to their subcontractors.
If they operate as a building contractor and subcontractor at the same time, they need to register for both. Overseas businesses that embark on any UK building and civil engineering work are also subject to the scheme and therefore, must register as a CIS contractor. Suppliers who provide construction materials directly to homeowners are not required to operate under the scheme.
Contractors must also verify whether their subcontractors are to be considered employed or self-employed. Generally, contractors consider subcontractors as employed when they work for them exclusively and don’t have plans to set up another business. This means they aren’t required to comply with the CIS tax but the Pay As You Earn (PAYE) system instead.
Individuals who have already registered as sole traders or self-employed can choose whether or not to register as CIS subcontractors, The same work situation also applies to overseas subcontractors working in the construction industry in the UK. Below, we discuss the advantage CIS-registered subcontractors have over non-registered ones.
Why Do I Need to Register for CIS?
Whilst contractors are legally required to register as a contractor first before they can begin any project, subcontractors have the option not to register. HMRC imposes a 30 per cent tax bill on non-CIS-registered subcontractors and 20 per cent on registered ones as advance payments for their income tax and National Insurance contributions (NICs).
This means CIS-registered subcontractors save 10 per cent of their tax payments and receive 80 per cent of their invoice—that is, if they are under the default net payment status, they can make a CIS repayment claim and other tax refund more easily and be able to appeal against CIS penalties. However, when they meet the criteria and apply for gross payment (discussed more below), they will receive 100 per cent of their invoice, which means there are no withheld CIS deductions, a significant help with their cash flow.
Requirements for CIS Registration
Contractors will need to present the following to register for CIS:
- legal business or trading name
- National Insurance number
- Business unique taxpayer reference number (UTR)
- VAT registration number if they are VAT registered
Subcontractors, on the other hand, have to prepare the following:
- National Insurance number
- UTR number
They can also register as self-employed, CIS subcontractors, and even for gross payment status at the same time.The criteria for applying for gross income payment include the following:
- Having had a good past record of tax payments promptly in their self assessment tax return
- Having a turnover exceeding £30,000
- Making business payments through bank account
Step-by-Step Guide to CIS Registration Online
Step 1 is always the CIS registration, generally done online. Contractors can register for CIS when they register for PAYE by clicking the box that asks ““will you be engaging any subcontractors in the Construction Industry”.
If they were already PAYE-registered before they became a contractor, they will only have to call the CIS helpline so the UK tax authority can update their system of the contractor’s new tax status. Contractors based outside the UK or on limited companies or partnerships follow the same steps.
Whilst for subcontractors who are already registered as sole traders or self-employed, they will only need their UTR, register for CIS online, use their Government Gateway username/user ID and password to log in to the site, and choose their CIS payment status—net payment (20 per cent withheld amount for income tax) or gross payment (no self employed income tax rate deducted).
Those not yet registered as self-employed can register for self-employment and CIS at the same time. Using HMRC’s online service, they can register for self-employment. They will then receive their Government Gateway ID via email and UTR via post.
Logging into HMRC’s official site using their Government Gateway ID, they select the option to register for the CIS scheme, and finally choose their CIS payment status.
How to Register for CIS by Mobile Phone?
Aside from logging into HMRC’s official platform, contractors and subcontractors can simply reach HMRC via their CIS helpline—0300 200 3210—or ask for their digital assistant.
When calling HMRC, they need to prepare their UTR, Value Added Tax, and National Insurance number. VAT details are optional as they are only asked when the business is VAT-registered. They will then be asked further questions for security purposes.
CIS helpline and HMRC’s digital assistant provide substantial support throughout the registration process. Contractors and subcontractors can also seek help from accountants to make the process more efficient and accurately completed.
How Long Does It Take to Apply for CIS?
PAYE-registered contractors only need a quick call to the CIS helpline to update their new CIS contractor status, which can be completed the same day. Whilst for subcontractors who are already registered as self-employed and are registering for CIS will take a few days to complete the registration.
Subcontractors who are not yet registered for a self-employed status take the longest time to complete the registration process. They will have to wait up to six weeks at most to be fully registered and receive a CIS card afterwards.
How Legend Financial Can Help?
The construction industry definitely has plenty of legal and income tax obligations, starting from CIS registration. And then, contractors are obliged to settle their subcontractors’ taxes and invoices, whilst subcontractors will also have to complete their CIS returns by themselves when they apply for the gross payment status.
Legend Financial is here to help. We have already worked with numerous contractors and subcontractors so they can focus on the construction work as we handle their tax affairs. For better guidance with CIS, reach us today!
What you must do as a Construction Industry Scheme (CIS) subcontractor. (n.d.). Retrieved from GOV.UK: https://www.gov.uk/what-you-must-do-as-a-cis-subcontractor/how-to-register
How do I register for CIS (the Construction Industry Scheme)? (2 February 2022). Retrieved from AMS Accountancy: https://www.ams-accountancy.co.uk/blog/how-do-i-register-for-cis-the-construction-industry-scheme/
CIS – Company registration. (n.d.). Retrieved from HM Revenue & Customs: https://public-online.hmrc.gov.uk/lc/content/xfaforms/profiles/forms.html?contentRoot=repository:///Applications/PersonalTax_A/1.0/CIS305_20167&template=CIS305.xdp
How to register for CIS. (n.d.). Retrieved from Tax Scouts: https://taxscouts.com/self-employed-tax-returns/how-to-register-for-cis/
How do I register for CIS? (n.d.). Retrieved from Tax Rebate Services: https://www.taxrebateservices.co.uk/tax-faqs/cis-tax-refund-faqs/register-cis
Registering as a self-employed subcontractor in construction. (n.d.). Retrieved from Tax Aid: https://taxaid.org.uk/guides/information/a-starting-point-for-the-self-employed/cis-subcontractor/registering-as-a-self-employed-subcontractor-in-construction
How to Register as a CIS Subcontractor Online. (n.d.). Retrieved from Go Self-Employed: https://goselfemployed.co/how-to-register-as-a-self-employed-cis-sub-contractor/
What is the Construction Industry Scheme (CIS)? (n.d.). Retrieved from Low Incomes Tax Reform Group: https://www.litrg.org.uk/tax-guides/self-employment/what-construction-industry-scheme-cis
CIS – partnership registration guidance notes. (n.d.). Retrieved from HM Revenue & Customs: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/516158/CIS304_Notes_04_16_.pdf