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The Construction Industry Scheme

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The Construction Industry Scheme (CIS) is a UK tax scheme designed to regulate payments from contractors to subcontractors in the construction sector. It ensures that tax and National Insurance contributions are deducted at the source before payment reaches the subcontractor.

Who Does CIS Apply To?

CIS applies to:

  1. Contractors who pay subcontractors for construction work.
  2. Subcontractors who receive payments for construction work (excluding materials).
  3. Certain businesses that aren’t construction companies but spend significant amounts on construction-related services (deemed contractors).

Reporting Requirements Under CIS

Contractors must meet specific reporting obligations, including:

  1. Verifying Subcontractors
    • Before making payments, contractors must verify the subcontractor’s status with HMRC to determine the correct tax deduction rate.
  2. Deducting Tax at Source
    • Payments to subcontractors are subject to tax deductions at rates of 20% (registered subcontractors) or 30% (unregistered subcontractors). Some may qualify for gross payment status, meaning no deductions are made.
  3. Monthly CIS Returns
    • Contractors must submit a CIS return to HMRC by the 19th of each month, detailing:
      1. Payments made to subcontractors.
      2. Deductions made.
      3. Confirmation that subcontractors are not employees (to prevent misclassification).
  4. Providing Payment Statements
    • Contractors must provide subcontractors with a payment statement showing deductions, helping them claim tax relief.
  5. Keeping Records
    • Accurate records of payments, deductions, and subcontractor details must be maintained for at least three years.

Penalties for Non-Compliance

Failing to comply with CIS rules can result in penalties, including fines for late or inaccurate returns. Contractors and subcontractors should ensure they follow CIS guidelines to avoid financial and legal consequences.

Summary & next steps

Please contact us if you want help preparing the CIS returns or reclaiming CIS taken at source.