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Who is exempt from the Construction Industry Scheme (CIS)?
Tax can be a complex issue for businesses. If you work in the construction industry, you need to know about the ...
Tax can be a complex issue for businesses. If you work in the construction industry, you need to know about the Construction Industry Scheme (CIS).
There are only a limited number of exemptions to the CIS so to help here is a short article where we explain everything you need to know. Let's begin!
The Construction Industry Scheme (CIS) is remarkably wide-ranging. As a broad principle, if you suspect that you may be subject to CIS or have been told by anyone that you are, you probably are.
There are some exemptions, but let’s first quickly cover what is in the scope of CIS. Where any contractor in the building trade uses subcontractors like brickies, sparkies, gas engineers or similar, both parties have to be registered under CIS. CIS covers building, demolition and site preparation; installation or changes to lighting, power, heating, ventilation and water; repairs; painting, decorating or plastering; and making alterations.
📚Read more: What is the Construction Industry Scheme (CIS)?
The contractor deducts typically 20% from the labour element of all invoices from the subcontractor and send the money to HMRC, while the subcontractor gets a tax credit for that money. Under some circumstances, the deduction is 30% and under others 0%. All types of businesses must register as a CIS contractor before they pay any subcontractor for work that falls within CIS.
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If you are employed under PAYE (pay as you earn) you are not a subcontractor and CIS never catches you.
The biggest single exemption when you are not under PAYE is if you are working directly for person who owns or occupies a residential building. When you are doing work directly for the person who benefits, you are not subject to CIS, you bill the person and pay with no deductions.
The second is when if you are doing one of a few types of work that is specifically exempted from the scheme. This includes architecture, quantity surveying, surveying, structural engineering calculations and creating other plans, designs or giving advice. This exemption ONLY applies to consultative work, never to actually doing the building work or supervising those that do.
The third is when you are doing work for an organisation whose main activity is not construction. This includes landlords with several properties and housing associations. There is only an exemption provided the person or organisation using you does not outsource more than £3m of building-related work each year.
Gotchas to watch out for
Where a subcontractor qualifies for gross payment i.e. no deductions under CIS, this does not mean they are not subject to CIS. All of the reporting and principles apply in full. It’s just that whilst their status remains “Gross payment”, they do not have to have CIS deducted.
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Please note that the content contained in this article does not substitute any professional advice. The article is provided for general information purposes only.