If you are working for a contractor in the construction industry (but not working as an employee), you will be a subcontractor. The HMRC has a special scheme for you to deduct tax from your earnings known as the construction industry scheme (CIS).
What is the Construction Industry Scheme?
This scheme allows the contractor to deduct a percentage of tax from the subcontractor’s earnings immediately (just like PAYE).
Contractors and Subcontractors
A contractor is a person who pays an amount to other people (the subcontractors) to do construction work. Basically, they outsource the construction work. HMRC recognizes an individual as a contractor if they have at least invested £3 million in the construction business in the last 3 years.
On the other hand, a subcontractor is a person who privately works for the contractor but not as an employee.
Registration of Construction Industry Scheme
The contractor and subcontractor both should be registered for the construction industry scheme. The contractor will automatically deduct tax from the subcontractor’s earnings.
Normally, if the subcontractor is not registered for the scheme, the contractor deducts 30% of their earnings for tax purposes whereas, registered subcontractors are deducted only 20% of tax. That being said, the construction industry scheme saves 10% of the subcontractor’s tax.
The scheme, however, has limitations on the scope of work that subcontractors can perform under the scheme.
| Work in the scope of CIS | Work out of the scope of CIS |
| Alterations and repairs in buildings | Architecture and surveying |
| Site preparation | Carpet fitting |
| Dismantling | Preparing material for construction |
| demolishing | any site facility offered to workers |
| installation of heating, lighting, water, or any other power in the building | material deliveries |
What expenses can I claim for CIS?
There are some specific expenses that you can claim under CIS. Here’s the list:
Capital expenses
The capital expenses which are purely for business purposes can be claimed for the construction industry scheme.
Motor vehicles
Motor vehicles that are wholly and exclusively used for business purposes. Their fuel, road tax, and insurance can be claimed under the construction industry scheme.
Tools and equipment
Tools and equipment purchased or replaced at some cost for business use only can also be claimed for the construction industry scheme.
Traveling expense
As a construction industry scheme registered individual, you can claim your traveling expense to your temporary workplace. Remember that a temporary workplace is where you work for less than 24 months and after that, you must return to your permanent one.
However, you cannot claim expenses incurred in traveling to your usual (permanent) workplace.
Admin cost
You can also claim admin costs in the construction industry scheme such as office supplies and legal counsel and accounting staff salaries.
Other expenses
As a CIS registered individual, you can claim other expenses too that come under the banner of business use.
Conclusion: Construction Industry Scheme
The Construction Industry Scheme is all about how contractors and subcontractors can efficiently pay their taxes to HMRC. The work includes in the construction business which is eligible for the construction industry scheme are site preparation, dismantling of plant or equipment from the site, demolishing and installing of new plant like water plant, electricity or heating, etc.
Some examples of the expenses which registered CIS subcontractors can claim are capital expenses, tools and equipment, traveling expenses for the temporary workplace, admin costs, and other expenses which are wholly for business purposes.
