The Construction Industry Scheme (CIS) is a tax scheme in the United Kingdom that applies to the construction industry. Under the CIS, contractors deduct money from a subcontractors payments and pass it to HM Revenue and Customs (HMRC) . The deductions count as advance payments towards the subcontractors tax and National Insurance. Contractors must register for the scheme, while subcontractors do not have to register, but deductions are taken from their payments at a higher rate if theyre not registered. The CIS applies to both individuals and companies.
The CIS requires contractors to make tax deductions on behalf of their subcontractors. The amount of tax that has been deducted under the CIS should be entered in the appropriate boxes on the self-employed pages of the tax return. The CIS rules mean that the contractor is usually obliged to withhold tax from its payments to the subcontractor, at either 20% if the subcontractor is registered or 30% if they are not.
CIS covers most construction work, including preparing the site, building work, alterations, repairs, and decorating. Contractors are required to register for CIS, and it is their responsibility to deduct the right amount of tax from subcontractors. Before they can do this, they need to verify the status of their subcontractors with HMRC. If subcontractors are "gross," no tax deduction is required. If they are CIS registered, a 20% deduction is required, and if they are unregistered, a 30% deduction is needed.
The benefits of CIS include improving cash flow, spreading the cost of tax and National Insurance across the year, and reducing the risk of penalties for non-compliance.
