What is the Construction Industry Scheme (CIS)?
Under the Construction Industry Scheme (CIS), contractors are required to deduct funds from a subcontractor’s payment and forward it directly to HMRC, which in turn are deemed to be advance payments towards the subcontractors’ tax liabilities.
Who is involved in CIS?
Businesses that carry out construction work may be required to register under CIS, regardless of the nature of the business itself. These businesses can involve contractors, subcontractors, and/or a mixture of both.
Construction work relating to a permanent or temporary building/structure and civil engineering work (e.g. roads) will be covered by CIS, and includes the following:
- Preparation of a site
- Alterations and decoarting
- Installing heating, lighting, power, water, and ventilation systems
- Cleaning following construction work
Work that does not come within the scope of CIS includes architecture, surveying, carpet fitting, and delivering construction materials.
Who is a contractor under CIS?
Under the scheme, there are 2 groups of contractors:
- Mainstream contractors (businesses that include construction operations). This usually includes property developers or speculative builders, those involved in erecting and altering buildings to make a profit, gang leaders organising labour for construction work, and construction businesses (including foreign businesses that carry out construction operations in the UK).
- Deemed contractors. This includes businesses whose main source of work is not within the construction industry, but who regularly carry out a large amount of construction work. Until a business can prove that their average annual expenditure on construction operations in the period of 3 years ending with their last accounting date does not exceed £1 million, it will be a deemed contractor under the CIS. Examples of deemed contractors include governmental departments, retailers, and housing associations.
Who is a subcontractor under CIS?
If you agree to complete construction work for a business or get your own subcontractor to do this for you, you will be considered a subcontractor. Labour agencies, sole traders and partnerships are examples of subcontractors under the CIS.
A foreign business being paid for construction operations that take place in the UK (or its territorial waters) will also be a sub-contractor.
If a gang is paid for construction work, each member who is paid separately will be considered a separate sub-contractor.
For a contract to be within the scheme, it must not be ‘a contract of employment’. This means all employees who are subject to PAYE are exempt from this scheme. However, general law determines employment status and an individual’s previous self-employment history is irrelevant to the determining of the current employment status.
Exemptions for certain contractors
Payments from the following are exempt:
- Construction operations by the governing body or head teacher of a maintained school on behalf of the local education authority.
- Construction operations by any body of persons or trust established for charitable purposes only.