What is the Construction Industry Scheme

What is CIS?

If you work in the construction industry and are a contractor (or subcontractor) you have to follow certain specific tax rules. Who says so? HMRC say so and in April 2007 these rules were completely overhauled. If you don't like it you should take it up with your MP. Meanwhile...

The good news is that there are many companies around who will look after all your CIS paperwork for you.

If you are a Contractor

As a contractor you need to confirm the tax status of all your subcontractors. You do this with HMRC. Don't make any payments to your subcontractors until you have confirmed their tax status.

This process is known as ‘verification'. When you have verified your subcontractors HMRC will tell you how they should be paid, which will be one of two ways, either:

• Gross
• Net of a deduction

The Contractor also has to send HMRC a record of this of this (called a ‘return') on a monthly basis.

If you are a Subcontractor

A subcontractor has to register himself or herself with HMRC. If you don't do this, the amount of money you get paid will drop. This is because higher-rate tax deductions will automatically be taken from your payments.

HMRC will let you know what tax deductions apply to your specific situation. The standard tax rate is 20%, and the higher rate 30%. You might even qualify to receive your money gross - that is with no tax deductions. For this, you must first pass HMRC's tests covering:

• Business
• Turnover
• Compliance

A subcontractor must also be registered as self employed. This means taking responsibility for tax self-assessments, business expenses and NIC payments over and above CIS registration.

What businesses does the Construction Industry Scheme cover?

Do you know if you're covered by CIS? You should check whether the work you are doing is covered by CIS. Don't forget that if any part of your contract is covered by the scheme, then all payments made by contractors to subcontractors for that work must be made through the CIS scheme.

• Demolition and site clearance
• Earth moving, tunnelling and excavation
• Preparing and laying foundations
• Construction of or alteration to any permanent or temporary building
• Construction of site facilities
• Installation of pipes, drains, sewers or underground cabling
• Construction, surfacing or repair of roads or driveways
• Internal cleaning or fitting work on buildings, including heating, lighting, ventilation, air conditioning, power supply, drainage, water supply, kitchens or bathrooms
• Installation and repair of glazing, doors or shutters
• Painting and decorating
• Finishing, such as floor covering (but not carpeting) and locks

There are other activities covered by CIS while some activities are also specifically excluded. There are more detailed rules explaining what comes under the CIS scheme which can be found at HMRC's website.