How Does the Construction Industry Scheme (CIS) work?
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CIS (short for “the Construction Industry Scheme“) was set up by HMRC to collect income tax throughout the year from people working in the construction industry.
Construction companies deduct tax on behalf of their workers (subcontractors) and send the money to HMRC as tax payments:
- 20% for workers who have registered themselves as subcontractors with HMRC
- 30% for those who have not
Note that CIS only applies if you work in construction as a subcontractor and you have registered for CIS – here is how you do it.
Example of how CIS works
Best Brickworks Ltd hires Tommy Jones on their site as a subcontractor. Every month Tommy is owed £1,500 pounds for his work.
- Every month the company pays £300 (20% of the £1,500) to HMRC as Tommy's taxes
- The company sends a CIS statement or payslip to Tommy as proof
- The company pays the remaining £1,200 to Tommy as payment for his work
How do CIS refunds work?
In the example above, Tommy's annual income was £18,000 (£1,500 * 12).
Tommy technically owes HMRC £2,370.20 (£1,230 Income tax + £1,015 national insurance).
However, throughout the yearBest Brickworks Ltd paid £3,600 in taxes on Tommy's behalf!
Tommy is now due a refund.
Need to file your CIS tax return?
Good news, Earnr can manage your tax return for you for just £99. You can download the app and make use of the our other features for free!
Learn more and download Earnr here.
