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WHAT IS CIS?

 

Implemented by HMRC, the current Construction Industry Scheme (CIS) has been in place since August 1999, with the initial deduction scheme introduced in 1971. The CIS requires a contractor to make a deduction from a subcontractor’s pay which will be offset against the subcontractor’s liability to income tax and NICs.

HOW DOES CIS WORK?

 

When an organisation has hired a building firm to carry out construction work, the building firm operates as a sub-contractor.

 

However, the sub-contractor may also need to register and operate as a  contractor as they often require additional workers to carry out certain types of labour, and hires individuals such as bricklayers, plumbers, roofers, and joiners.

 

The CIS has been put in place to ensure that sub-contractors pay the tax due on their earnings. CIS tax is deducted and paid by the contractors on the sub-contractor’s behalf. This helps to eliminate the risk of non-payment of tax through ‘cash in hand’ payments, and reduces instances of fraudulent behaviour.

 

The CIS also means that sub-contractors have an easier time completing their annual tax-return, as pay deduction statements will show the amount of income tax already deducted, thereby avoiding duplicate tax payments.

SEE FOR YOURSELF

BEFORE AND

AFTER CIS

 

BEFORE CIS

AFTER CIS

HMRC

Inaccurate or absent tax payments received

Receives income tax payments from CIS registered contractors.

Contractors:

Handling cash payments and risking fraudulent activity

• All contractors must register with the Construction Industry Scheme.

• Make the appropriate deduction from all sub-contractor earnings before payment, and provide a monthly return to HMRC.

Sub-contractors:

Risk of non-payment of income tax

• Have the choice to register with the scheme or not. Those that don’t register have deductions taken from their payments at a higher rate of 30%, compared to 20% when registered with CIS.

• Sub-contractors need to also register as a contractor if they outsource work.

• Option to pursue gross payment status

DOES CIS APPLY TO ME?

 

If you’re a contractor (mainstream contractor), subcontractor, or an organisation with a high annual-spend on construction (deemed contractor), operating under self-employed, limited company or Limited Liability Partnership (LLP) status, you are able to register with the CIS.

 

 

The Construction Industry Scheme defines construction work as…

  • a permanent or temporary building or structure
  • civil engineering work like roads and bridges

 

 

…and includes:

  • preparing the site, e.g. laying foundations and providing access works
  • demolition and dismantling
  • building work
  • alterations, repairs and decorating
  • installing systems for heating, lighting, power, water and ventilation
  • cleaning the inside of buildings after construction work

 

 

Some construction site tasks are not covered by the scheme, including:

  • architecture
  • carpet fitting
  • site facilities
  • canteen functions
  • surveying

 

 

Ref: https://www.gov.uk/what-is-the-construction-industry-scheme

 

 

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