The Construction Industry Scheme (CIS) was setup by HMRC so that business and individuals working in the construction industry have a set of rules when it comes to making tax and national insurance payments.
It is used to determine how the pay of subcontractors from contractors for construction work should be handled. The scheme outlines that all payments made from contractors to subcontractors should take the tax status of the subcontractor into account. And so, should a contractor be required to make a deduction from a subcontractor’s pay, this will then be paid to HMRC. This deducted amount from the subcontractor’s income will count as payments towards their tax and national insurance.
What is a contractor?
As defined by HMRC, a contractor is a business that pays subcontractors for construction work. You are considered to be a contractor if you spend £1 million or more per annum on construction operations over a 3 year period. It does not matter if you have a construction company, a building firm, you are operating as a Government department or within a local authority, you are still counted within the Construction Industry Scheme from HMRC as a contractor.
What is a Subcontractor?
A subcontractor is business that carries out construction works on behalf of or working for a contractor. If you are an individual, a body or organisation you can be a subcontractor if you have been paid by a contractor to complete construction works. It is important to remember that any business can be defined as a subcontractor, it does not simply refer to someone who is self-employed. Also, you operate as a contractor and subcontractor at the same time!
How do you Register for the CIS?
Contractors who pay subcontractors to complete any form of construction work must register for the CIS. Subcontractors are not obligated to register, however if they do not, they will have highest rate of 30% deducted from their earnings by the contractor and given to HMRC.
McKellar Accountancy will inform you of all you need to know about the CIS. Get in touch, today.