The Construction Industry Scheme (CIS) is a tax deduction initiative implemented by the UK government to improve tax compliance within the construction industry. Under the CIS, contractors deduct money from subcontractors’ payments and pass it directly to HM Revenue and Customs (HMRC). These deductions count as advance payments towards the subcontractor’s tax and National Insurance.
Key Features of the CIS
- Scope and Applicability:
– The scheme covers all payments made by contractors to subcontractors for construction work, which includes jobs such as site preparation, alterations, dismantling, construction, repairs, decorating, and demolition.
– Both contractors and subcontractors must register with HMRC for the scheme. However, even if a subcontractor is not registered, the contractor is still obliged to deduct the CIS tax at a higher rate.
- Deductions:
– Registered subcontractors typically have deductions taken at a standard rate of 20%, while unregistered subcontractors face a higher rate of 30%.
– Certain subcontractors may qualify for a ‘gross payment’ status, where no deductions are made, and they are responsible for paying all their tax at the end of the tax year.
- Contractor Obligations:
– Contractors must verify subcontractors with HMRC before making payments.
– They are required to submit monthly returns detailing the payments and deductions made.
– Contractors must keep full and accurate records to ensure compliance and avoid penalties.
The Construction Industry Scheme plays a critical role in ensuring tax compliance within the construction sector. Partnering with an experienced accountancy firm can simplify the process, mitigate risks, and ensure your business remains compliant with all HMRC requirements.
