CIS payroll refers to the payments made between contractors and subcontractors under the government’s Construction Industry Scheme - or CIS.
Contractors and subcontractors may encounter CIS payroll service companies through the course of their professional lives. This article looks to introduce some of the roles and relationships between contractors, subcontractors, and specialised CIS payroll companies.
After reading you should have a firmer understanding of these relationships.
What is CIS payroll?
CIS is the construction industry scheme, and CIS payroll refers to the processing of payment from contractors to subcontractors under the scheme. CIS payroll can be done in-house by a contractor, our outsourced to a payroll company specialising in this scheme.
Contractors paying their own subcontractors process CIS payments at the same time as the rest of their payroll. Any deductions under CIS are paid to HMRC. A return is then submitted showing what was paid to subcontractors.
It's possible for an employer to be registered with PAYE, and to also be registered as a contractor under CIS. A dual PAYE/CIS payroll system allows an organisation to pay different types of staff in line with HMRC requirements.
Who does CIS apply to?
The CIS applies to contractors and subcontractors in the construction industry.
You may be wondering whether you qualify as a contractor, a subcontractor, or neither. Well, here's how to tell -
If you have subcontractors of your own, or if you spend over £1 million on construction in any three year period, you qualify as a contractor.
If you complete work on a project under the employment of a contractor, you’re a subcontractor.
CIS stipulates legal and tax obligations for contractors and subcontractors alike, and thus applies to individuals and organisations at both ends of the spectrum.
Who is covered with CIS?
Contractors and subcontractors in the construction industry are covered with CIS.
As a rule of thumb, if you consider yourself to be a freelance contractor in the construction - as a builder or decorator, for example - then you're probably covered by CIS.
It's important to understand whether you're covered. Sole traders, partnerships, or companies who meet the criteria for contractors are required by law to enrol in the CIS. Those who qualify as subcontractors are not legally obliged to enrol, but may enjoy certain benefits if they decide to do so.
At a top-level, you're a contractor if -
- You use subcontractors, or,
- Your business spends £1 million or more on construction over a three year period.
If you do not meed these criteria but work in the construction industry, you're likely considered a subcontractor under CIS. Subcontractors work on larger projects under the employ of a contractor.
Bear in mind that there are exceptions. Certain roles in the construction industry - like architects and surveyors, for example - are exempt from the CIS. The full list of exemptions is available on the HMRC website
You can also qualify as both. For example, if you agree to do work for a contractor, but work with subcontractors of your own.
If it all feels a bit confusing and inconsistent, that’s OK. It’s a tricky scheme to get your head around, especially if you’re new to it. There is a dedicated CIS hotline at 0300 200 3210, and a wealth of information on the government’s website.
You can also run through these questions with a CIS payroll services company to ensure you're compliant with any and all of your CIS obligations.
How do I know if I need CIS payroll?
First, you need to determine whether or not you need to enrol in CIS.
As a contractor, once you've established this information, it's up to you to decide whether CIS payroll services are a worthwhile investment for you. Some contractors decide to keep their payroll services in-house - perhaps they already have a payroll department who can take on the workload.
Here are some factors that might suggest outsourcing your CIS payroll would be beneficial -
Costs of Closing a Skill Gap
If an in-house team is trained in PAYE, they may need additional training to familiarise themselves with the idiosyncrasies of CIS. The costs of this up-skilling may cause some contractor firms to look at outsourcing instead, in which case they hand over the responsibility of their CIS payroll to a company specialising in this industry.
This situation can arise when a company becomes eligible for CIS after having only had employees who were eligible to be paid through PAYE.
Strained Internal Resource
Perhaps a contracting firm doesn’t have a dedicated in-house payroll team at all, or the team they do have is at full capacity. In such situations, delegating some of the administrative burdens to experts can relieve the workload and allow for more streamlined internal resource.
Change in Eligibility
If someone operating as a subcontractor also becomes eligible as a contractor by hiring subcontractors of their own, they may decide to involve a CIS payroll company to manage payment and payroll processing of their new subcontractors.
This situation can arise when an individual doesn’t expect to operate as a contractor frequently enough to warrant hiring and retaining dedicated staff, and does not have the inclination or expertise to manage CIS payroll themselves.
What Else Should I Consider?
CIS payroll is a wide umbrella that involves various other legal and financial obligations. When considering whether CIS aligns with your need, keep these in mind -
- Minimum wage: All subcontractors must be paid at least the legal minimum wage. CIS does not change this.
- Pension contributions: Some Subcontractors earning over £10,000 per year are automatically enrolled into a government-mandated pension scheme, but they are eligible to leave after a month. Employing contractors do not have to match contributions.
- Statutory benefits: CIS does not make provisions for sick pay, holiday pay, maternity pay, or paternity pay. Government schemes may be able to assist people enrolled in CIS who need such support.
- Employment law: The legislation defining and surrounding CIS is in frequent flux, so you need to keep abreast of changes and how they will affect you. Working with a specialist CIS payroll companies hands over this responsibility.
The Construction Industry Scheme (CIS) has many implications for contractor and subcontractor payroll. Involvement in the construction industry often makes you eligible for CIS, although this does depend on the nature of your work and the relationship through which you employ or are employed.
Depending on whether you qualify as a contractor, a subcontractor, or neither, CIS will affect you differently. Some contractors decide to outsource their CIS payroll obligations to an external payroll company with CIS speciality. This removes some of their administrative burdens, and frees up their internal resource to focus on other aspects of their business.
This article has outlined some of the key concepts of CIS and has hopefully strengthened your understanding of the scheme and its impact on you.
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