A Snapshot of HMRC’s Construction Industry Scheme

By Stephen Wright, Tax Group
stephenwright@lubbockfine.co.uk
020 7490 7766

 

The Construction Industry Scheme (CIS) can be difficult to understand as it doesn’t just apply to construction businesses, it can also apply to non-construction businesses such as property investors (see point 2 of Contractors section).

In the CIS, there are Contractors and Subcontractors. Contractors are businesses which pay Subcontractors to carry out construction work and Subcontractors are those businesses which carry out work for Contractors. Many businesses act as both Contractors and Subcontractors.

To provide a snapshot of criteria that defines both Contractors and Subcontractors, I have outlined 5 key points for each type of business below:

Contractors

  1. All construction businesses must register for CIS as a Contractor if they are paying subcontractors for carrying out construction operations.
  2. Most non-construction businesses will need to register for CIS as a Contractor if their average spend on construction operations is more than £1 million per year in any 3-year period.
  3. Construction operations include preparation of site, demolition works, building works, repairs, installation of systems and finishing works. Legal and professional fees are not classified as construction operations (specific exceptions apply).
  4. Contractors must file monthly CIS returns which run on a tax month basis (6th to 5th) and are due 14 days after the tax month end. The CIS returns work on a payment basis meaning that the return must show all construction payments made within that period.
  5. Contractors must verify each subcontractor with HMRC before they are paid.

Subcontractors

  1. If a business (including the self employed) is being paid to carry out construction work, it is a subcontractor and should register with HMRC.
  2. Registered subcontractors can either have gross (paid in full) or net payment status (paid under deduction).
  3. To obtain gross payment status, subcontractors must exceed the net construction turnover threshold, have complied with their tax obligations and operate construction work in the UK.
  4. Subcontractors who have net payment status can offset their deductions against their PAYE liability (employers) or make a claim at the end of the tax year in writing (companies) or through their tax return (individuals/partnerships). 
  5. Subcontractors are not required to file CIS returns (providing they are not also a contractor).

If you want to find out more about CIS, please download our factsheet or speak to your contact partner or contact Stephen Wright. 

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