Construction Industry Scheme: an introduction
The Construction Industry Scheme (CIS) sets special tax and National Insurance rules for construction work. It applies to businesses known as contractors and subcontractors. Both groups must understand the tax implications to remain compliant. Failure to follow the rules can lead to penalties and interest charges.
How the scheme works
Under the scheme, contractors deduct money from subcontractor payments and send it to HMRC. These deductions count as advance payments towards the subcontractor’s tax and National Insurance. Contractors include businesses paying subcontractors for construction work or those spending more than £3 million on construction annually. This threshold applies to the 12 months following the first payment.
Registration and deduction rates
Subcontractors do not have to register for CIS. However, contractors deduct 30% from payments to unregistered subcontractors. Registered subcontractors face a lower deduction of 20%. Alternatively, subcontractors can apply for gross payment status. In that case, contractors make no deductions, and the subcontractor pays tax and National Insurance at year-end. This option improves cash flow but requires meeting strict conditions.
Construction Industry Scheme: qualifying for gross payment status
To qualify for gross payment status, subcontractors must meet specific criteria. They must have paid tax and National Insurance on time in the past. Their business must carry out construction work or supply labour for it in the UK. Additionally, turnover must reach at least £30,000 for sole traders. Partnerships and companies need higher thresholds. Applications can be submitted online or by post.
Compliance and record-keeping
Accurate records are essential under CIS. Contractors must report deductions correctly and pay HMRC on time. Subcontractors should monitor deductions and confirm registration details. Regular reviews help avoid errors and disputes. Therefore, businesses should train staff and maintain clear documentation.
