CIS deductions explained: 20%, 30% and gross payment status

What CIS is

Under the Construction Industry Scheme, contractors deduct money from payments to subcontractors and pass it to HMRC as an advance on the subcontractor's tax and National Insurance. HMRC's CIS 340 guide covers the scheme in full ^[4].

The three rates

• 20% for subcontractors registered with CIS ^[1].
• 30% for subcontractors who are not registered ^[1].
• 0% for subcontractors with gross payment status ^[1].

The deduction is made on the labour part of the payment. Materials the subcontractor paid for directly are not subject to the deduction ^[1]. Registering is therefore worth 10% of labour cash flow to a subcontractor.

Gross payment status

With gross payment status, contractors pay you in full with no deduction ^[2]. To qualify you must pass three sets of tests: a business test (you carry out construction work in the UK through a bank account), a turnover test, and a compliance test on your tax history ^[2].

The turnover test is at least £30,000 of net construction turnover for a sole trader, with higher or per-partner and per-director thresholds for partnerships and companies ^[2].

What contractors must do each month

• Verify new subcontractors with HMRC before paying them ^[4].
• Make the right deduction and give the subcontractor a statement.
• File the monthly return by the 19th and pay the deductions to HMRC ^[3].

CIS and getting paid

A CIS deduction is not a reason to pay late. When a contractor withholds more than the deduction, or pays after the final date for payment, the Construction Act and the late payment legislation still apply to the net amount due. Nemexio calculates the position on each application and chases the balance.