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What is CIS
The Construction Industry Scheme (CIS) is a tax deduction scheme which involves contractors and subcontractors in the construction industry. Implemented by HM Revenue & Customs (HMRC) in the United Kingdom, CIS is designed to minimize tax evasion within the construction sector by ensuring that contractors deduct money from a subcontractor’s payments and pass it to HMRC. These deductions count as advance payments towards the subcontractor's tax and National Insurance.
How Does CIS Work?
Contractor Registration: Any business or entity that pays subcontractors for construction work must register as a contractor with HMRC under the CIS.
Subcontractor Verification: Contractors must verify their subcontractors with HMRC. This verification process determines the level of tax that the contractor must deduct from the subcontractor’s payments.
Tax Deductions: The standard deduction rate is 20% for registered subcontractors and 30% for those who are not registered. These deductions are made from the labor portion of the subcontractor's invoice, not materials or VAT.
Monthly Returns: Contractors are required to file monthly returns with HMRC, detailing the payments made to all subcontractors and the deductions withheld.
CIS applies to most workers in the UK construction industry. This includes:
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Contractors: Entities or individuals who pay subcontractors for construction work. Contractors can be construction companies, building firms, government departments, local authorities, and others.
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Subcontractors: Those who carry out construction work and are paid by a contractor. Subcontractors can be self-employed individuals, partnerships, or limited companies.
Importance of Compliance
Compliance with CIS is critical. Failure to adhere to the rules can result in hefty penalties from HMRC. It is important for contractors to accurately verify subcontractors, deduct the correct amount of tax, and make timely submissions of their monthly returns.
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20%
for registered subcontractors
30%
for those who are not registered
0%
0% if the subcontractor has gross payment statement