Work out your CIS duties when you use occasional labour

The Construction Industry Scheme (CIS) applies to you as soon as you pay someone else for construction work, however rarely and however small the job.

When CIS applies

If you are a self-employed tradesperson and you pay another person to do construction work, you are a CIS contractor. A mainstream contractor has no minimum payment or number of jobs. The exception for contracts under £1,000 is only for deemed contractors, businesses outside construction that have spent more than £3 million on it. A verbal agreement counts as a contract, and cash, advances and loans count as payments.

CIS covers most work on buildings and structures, including site preparation, alterations, repairs, decorating and demolition. It does not cover architecture and surveying, scaffolding hire without labour, carpet fitting, delivering materials, or activities on site that are clearly not construction, such as running a canteen. Where one contract mixes construction and other work, all payments under it come within CIS.

CIS does not apply to an ordinary householder paying for work on their own home. It also does not apply to an employee, so first decide which the person is.

Decide whether the person is an employee

You must check whether you should employ the person instead of subcontracting the work, and you can be penalised if they should have been an employee. What matters is the terms of the particular engagement, not whether they have worked as a self-employed person before. You can be a PAYE employer and a CIS contractor at the same time.

What it looks like in practice

A plumber who brings in a labourer

If the labourer is genuinely self-employed, CIS applies and you are the contractor. Check their status before you rely on that. If they are in effect working for you as an employee, you should put them on your payroll instead.

A friend who helps for a day

If you pay a friend for construction work and they are not your employee, CIS applies, even if it is a one-off job and you pay cash. If you did not register, verify or deduct, HMRC can make you pay the tax you should have deducted. HMRC can waive that if you took reasonable care and the failure was an innocent error, or if the person was not chargeable or has paid the tax on the income.

An apprentice on your payroll

CIS does not apply to payments to your apprentice, because they are your employee and their tax goes through PAYE. It still applies to any other self-employed people you pay.

A builder who hires an electrician and a plumber

This is the classic CIS case. Each is a subcontractor, so you verify both, deduct from the labour part of their invoices and not the materials they paid for, and include both on your monthly return.

What you must do

Months when you pay no one

Common questions

What if they will not give me their UTR?

Verify them with the details you have. If HMRC has no record of them, or cannot verify the details for any other reason, it tells you to deduct at the higher rate. You cannot avoid your duties as a contractor because they decline to register.

Can I add the tax to what I agreed to pay?

The deduction comes off the gross payment, so if you agree what they will receive, work back to the gross figure. For example, if they are to receive £120 after a deduction of £30, the gross payment is £150. You must still make and report the deduction.

What if I forgot to deduct tax?

Correct the position with HMRC as soon as you notice. HMRC may waive your liability if you took reasonable care and the failure was an innocent error, or if the person you paid was not chargeable to tax on the payments or has paid the tax. If it refuses to waive, you can appeal.

What if I get the status wrong?

On each monthly return you declare that the subcontractors listed are not employees. You can be penalised for giving the wrong employment status for a subcontractor.

Records

Keep a record of each payment when you make it: the gross amount without VAT, the cost of any materials without VAT, and the deduction.