If you work in the construction industry, you may have heard of the Construction Industry Scheme or CIS for short. CIS is a tax scheme that applies to contractors and subcontractors working in the construction industry. In this article, we’ll take a closer look at CIS and what it means for your business.
What is the Construction Industry Scheme (CIS)?
The Construction Industry Scheme is a tax scheme that was introduced by HM Revenue and Customs (HMRC) in 1999. The scheme was introduced to help prevent tax evasion in the construction industry. CIS requires contractors and subcontractors to register with HMRC and to follow certain rules when paying their subcontractors.
Under the scheme, a contractor is defined as anyone who pays a subcontractor to carry out construction work. A subcontractor is defined as anyone who carries out construction work for a contractor. The scheme applies to both individuals and companies.
How does CIS work?
Under CIS, contractors are required to verify the employment status of their subcontractors and to deduct tax from their payments if necessary. This means that subcontractors are paid their gross fee, and the contractor deducts tax from the payment, which is then paid to HMRC. The amount of tax deducted depends on the subcontractor’s employment status and whether they are registered for CIS.
Subcontractors who are registered for CIS will have tax deducted from their payments at a lower rate than those who are not registered. However, if a subcontractor is not registered for CIS, the contractor will have to deduct tax at a higher rate. Therefore, it is in the subcontractor’s best interest to register for CIS.
Contractors must also submit monthly CIS returns to HMRC, detailing the payments they have made to subcontractors and the amount of tax deducted. This information is used to ensure that subcontractors are paying the correct amount of tax.
To whom does CIS apply?
CIS applies to anyone who works in the construction industry as a contractor or subcontractor. This includes builders, plumbers, electricians, decorators, and other tradespeople. However, some construction-related services are excluded from the scheme, such as architecture and surveying. If you work in the construction industry and you are not sure whether CIS applies to you, it’s important to check with HMRC.
What are the benefits of CIS?
CIS benefits both contractors and subcontractors. For contractors, it ensures that they are paying the correct amount of tax and helps to prevent tax evasion in the industry. For subcontractors, registering for CIS can help to reduce the amount of tax they have to pay. However, it’s important to note that registering for CIS can also have drawbacks for subcontractors. For example, if a subcontractor is registered for CIS but their employment status is later found to be incorrect, they may have to pay back tax that was underpaid.
CIS is a tax scheme that applies to contractors and subcontractors in the construction industry. It requires contractors to verify the employment status of their subcontractors and to deduct tax from their payments if necessary. Subcontractors are encouraged to register for CIS to benefit from a lower rate of tax. If you work in the construction industry, it’s important to understand the rules of CIS and to comply with them to avoid any potential penalties. If you have any questions, do not hesitate to get in contact with our team. We are always happy to help!
