The Construction Industry Scheme (CIS) is a set of special rules that affect tax and National Insurance for those working in the construction industry. Businesses in the construction industry are known as 'contractors' and 'subcontractors' and will need to be aware of the tax implications of the scheme.
Under the CIS, contractors are required to deduct money from a subcontractor’s payments and pass it to HMRC. The deductions count as advance payments towards the subcontractor’s tax and National Insurance liabilities.
Contractors are defined as those who pay subcontractors for construction work or who spent more than £3m on construction a year in the 12 months since they made their first payment.
Subcontractors do not have to register for the CIS, but contractors must deduct 30% from their payments to unregistered subcontractors. The alternative is to register as a CIS subcontractor where a 20% deduction is taken or to apply for gross payment status when the contractor will not make any deductions and the subcontractor is responsible to pay all their tax and National Insurance at the end of the tax year.
The CIS covers most construction work carried out in the UK, including jobs such as:
- site preparation
Exceptions to the definition of construction work includes professional work done by architects and surveyors, carpet fitting, scaffolding hire (with no labour) and work on construction sites that’s clearly not construction. The CIS does not apply to construction work carried on outside the UK.