What is CIS Payroll and Who Does It Apply To?

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Paying employees on time is mission-critical for any business. But, depending on your industry, not every worker is paid in the same way. This applies to payments issued by contractors and subcontractors within the construction industry.

You may have to ask some advanced questions about your payroll service and any tax affairs, such as any specific CIS related challenges you currently face.

Since IR35 reformed in April 2021, there’s been reasonable confusion about off-payroll working and whether it takes precedence over CIS. Here we help you know what exactly applies to your workforce when you employ subcontractors.

If you’re navigating the UK government’s Construction Industry Scheme (more commonly known as CIS), you will likely be looking for more information, especially how it impacts your payroll. Contractors will encounter CIS payroll service at some point, but they will need to know about the special relationships and roles of subcontracting and payroll under CIS regulations.

So, What is CIS Payroll? 

At its simplest, CIS payroll describes payments made to subcontractors through the government’s Construction Industry Scheme regime. CIS payroll outlines the various rules contractors must acknowledge in regard to calculating and paying subcontracted work.

The CIS Scheme, Explained

If you’re currently a contractor operating in the construction industry, you’ll need to register for the Construction Industry Scheme (CIS).

Developed and coordinated by HM Revenue and Customs (HMRC), CIS payroll represents a tax-deduction scheme, which sets aside pay for income tax, national insurance (NI) contributions, and further deductions. Wherever possible, relevant, and applicable deductions will be sourced directly from the subcontractor’s pay.

The aim of the Construction Industry Scheme, outlined by the UK government, is to simplify the payment of tax and national insurance by reducing the administrative burden typically associated with running payroll.

Working to the mandatory rules governed by the Construction Industry Scheme, contractors should deduct tax and National Insurance from a subcontractor’s payment and use this to pay HMRC. This payment to HMRC is considered an “advance”, so you won’t have to calculate tax later. Even without CIS, all employee wages will have deductions for tax and National Insurance; these are mandatory. CIS payroll – along with the scheme – simplifies compliance so contractors can issue payments to subcontractors without the risk of errors.

Who Does CIS Payroll Apply to?

Developed by HM Revenue and Customs (HMRC), CIS payroll is a UK policy that defines how you pay subcontractors employed within the construction industry.

If you’re uncertain about whether to enrol under CIS, you need to confirm your eligibility, as the scheme is not optional. If the following applies, then the government will determine that you are a contractor who should enrol under CIS payroll:

• your projects and/or workforce relies on subcontracting
• your firm exceeds £1 million in construction spending over three-years

A complete eligibility check can be carried out under Section 2.2 of the CIS guide, officially curated by the HMRC. It’s essential to clarify with the UK government because CIS uses the term ‘contractor’ differently from its general use across the industry.

The government clarifies which contractors need to enrol, explaining how it defines this type of role here:

“The term ‘contractor’ has a special meaning that is much wider than it normally has in the construction industry.”

The CIS scheme covers the UK’s construction industry, particularly affecting those working on building projects, which might include the following labour:

• site preparations
• miscellaneous construction tasks
• site decoration, including installations
• building refurbishments
• building demolition
• any alterations

There may be other businesses that fall outside of this industry, but who are involved heavily with construction operations. Where this is relevant, it’s likely that you’ll need to enrol for the Construction Industry Scheme, using CIS payroll to simplify compliance with tax and other deductions on behalf of a subcontracted workforce.

Examples of eligible businesses might include those working in areas such as:

• housing associations
• local authorities
• certain government agencies

Disclaimer: it’s worth noting that even if you’re not operating a business strictly with headquarters in the UK, but your construction work happens in the UK, you will still need to register for CIS. 

Who is Exempt from CIS?

It’s critical to study the eligibility for the Construction Industry Scheme because exemptions may apply to certain workers involved in construction projects. Specialists like architects and surveyors, for example, are considered exempt from CIS.

Yet, freelancers involved with construction projects may need to carefully clarify whether they should enrol. This can be achieved in two ways:

1. liaise with your contractor
2. determine your contribution to a construction project – if it’s not to do with architecture or similar consultation or surveying, you’ll likely need to enrol

What is a CIS Payment?

Using CIS payroll is critical to ensuring that your construction operation is compliant and that it can effectively issue payments to subcontractors. Using CIS payroll, payments to subcontractors with the appropriate deductions made from their payslips.

If the subcontractors you work with are registered, the standard tax rate is 20%. However, if they’re not registered, deductions are calculated and taken at a higher rate, typically equal to 30%.

CIS Payroll Simplified

Staffology’s powerful payroll software can support the whole journey when it comes to managing and paying a subcontracted workforce under CIS. If you need support calculating and paying CIS subcontractors and making deductions, including verification to issuing monthly statements, we can help you keep things simple.

Find out more about our CIS payroll service, or explore our payroll features today.

Duane Jackson, June 15th, 2022

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