HMRC developed the Construction Industry Scheme – CIS – in order to maximise the tax take in an industry where historically subcontractors were often paid on a casual basis and/or in cash. Its objective is to ensure that labour-only subcontractors are genuinely self-employed and that the correct amount of tax is paid by both operative and contractor.
CIS covers contractors and subcontractors within the construction industry.
It is applicable to contractors who pay for work to be carried out and subcontractors who carry out the work on a freelance basis. There is however, some construction based work which is not covered by CIS. This includes architecture, carpet fitting, site facilities, canteens and surveying.
Whilst all contractors should be registered for CIS, subcontractors are not obliged to register, although those that choose not to must pay tax at the higher rate of 30%. In certain circumstances it’s necessary to register as both a subcontractor and a contractor, depending on whether you outsource your work.
So far as the practicalities are concerned, under the Construction Industry Scheme, the appropriate amount of tax is deducted from a sub-contractor’s earnings and remitted to HMRC. The deductions count as advance payments towards the subcontractor’s total tax and national insurance contributions.
It’s necessary to verify with HMRC that a subbie is registered under CIS before payments can be made. Depending on the subbie’s registration status, HMRC will specify the rate of deduction to be applied to the payment – either 20% or 30% - or whether the payment can be made without any deduction because the subbie has gross payment status.
To find out more about CIS and your responsibilities, please contact Hudson Contract. We’ll help you make it simple, straightforward and – most important of all – 100% compliant.