One of our specialised areas, and an area of work we enjoy, is supporting businesses within the construction industry.
As part of our leading knowledge and expertise, we manage CIS on a regular basis for our clients.
What is CIS?
The Construction Industry Scheme (CIS) is a tax deduction scheme which involves tax being deducted at source from payments which relate to construction work.
Under CIS, contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC). The deductions count as advance payments towards the subcontractor’s tax and National Insurance.
CIS covers most construction work to buildings, including site preparation, decorating and refurbishment. There are some exceptions, such as carpet fitting or the delivery of materials, but for a full list see the HMRC guidance by clicking here.
Who is a contractor and who is a subcontractor?
Register as a contractor if either, you pay subcontractors for construction work or your business doesn’t do construction work but you spend an average of more than £1 million a year on construction in any 3-year period
Register as a subcontractor if you do construction work for a contractor.
How does it work in practice?
CIS will apply to payments made by a contractor to a subcontractor.
In order to be eligible to receive gross payments from a contractor, the subcontractor must register with HMRC and provide evidence to show it satisfies the three tests – known as the business, turnover and compliance tests.
Although the best position would be for the subcontractor to register for gross payments, if the subcontractor is not eligible because it fails one of the three tests it can still register with HMRC to ensure that tax is only deducted at the lower rate of 20% instead of the higher rate of 30%.
If you have any questions about CIS, the deductions, or would like to discuss how we can support your construction business, then please do not hesitate to contact us for a discussion with no obligation.