The Construction Industry Scheme
The Construction Industry Scheme (CIS) is a set of special tax and National Insurance rules for those working in the construction industry. Businesses in the construction industry are known as 'contractors' and 'subcontractors' and should be aware of the tax implications of the scheme.
Under the scheme, 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.
Monthly returns must be submitted online. The monthly return relates to each tax month (i.e., running from the 6th of one month to the 5th of the next). The deadline for submission is 14 days after the end of the tax month. Contractors who have not paid subcontractors in a particular month are required to submit a 'CIS nil return' or notify HMRC that no return is due.
Additionally, new VAT rules for building contractors and sub-contractors came into effect on 1 March 2021. This means that for certain specified supplies, sub-contractors no longer add VAT to their supplies to most building customers, instead, the contractors are obliged to pay the deemed output VAT on behalf of their registered sub-contractor suppliers. This is known as the Domestic Reverse Charge. The contactors can then claim back the output tax paid as input VAT, subject to the usual rules.
The CIS is a set of special rules for tax and National Insurance (NI) for those working in the construction industry. Businesses in the construction industry are known as ‘contractors’ and ‘subcontractors’.
The scheme applies mainly to contractors and sub-contractors involved in construction however certain businesses that are not in the business of construction but have a significant amount of annual spend may also count as contractors.
The CIS can apply to all types of businesses that work in the construction industry in the UK.
This includes:
- self-employed individuals working as sole traders
- partnerships
- companies
- Limited Liability Partnerships (LLPs)
As well as traditional construction businesses like builders, the scheme can also apply to businesses like:
- labour agencies and staff bureaux
- gangmasters – or gang leaders
- property developers
There are penalties for late submission of CIS contractor monthly returns. The penalties increase the longer the returns are outstanding.
HMRC has been working with professional bodies, tax charities and businesses on a number of initiatives to improve service delivery. The group have looked at a number of different areas to improve HMRC’s service to taxpayers. One of these areas was the CIS. From April 2014, taxpayers can expect an improved experience when they request a CIS repayment. This includes faster repayments and processing of claims.