The Construction Industry Scheme (CIS) was introduced in 1971 to combat serious tax evasion in the industry. The CIS scheme has rules as to how contractors should make payments to sub-contractors.
What are contractors?
Contractors typically provide agreed services to a client for a fee under a contract for services. You must Register as a contractor if either:
- you pay subcontractors for construction work
- your business does not do construction work. BUT you have spent more than £3 million on construction in the 12 months since you made your first payment
What are subcontractors?
Subcontractors take on work from the contractor. Subcontractors take on work that a contractor cannot do but for which the contractor is responsible. You must Register as a subcontractor if you do construction work for a contractor
Subcontractors range from an individual or large company carrying out work for a building contractor. A subcontractor has a contract with the contractor for the services provided – an employee of the contractor cannot also be a subcontractor.
For example, a building contractor may hire a subcontractor plasterer to complete part of the contractor's building job. Furthermore, the contractor is responsible to the client for the building job including the part performed by the subcontractor.
What type of work is covered by CIS
CIS covers most construction work to:
- a permanent or temporary building or structure
- civil engineering work like roads and bridges
For the purpose of CIS, construction work includes:
- preparing the site – for example, laying foundations and providing access works
- demolition and dismantling
- building work
- alterations, repairs and decorating
- installing systems for heating, lighting, power, water and ventilation
- cleaning the inside of buildings after construction work
Moreover, you do not have to register if you only do certain jobs, including:
- architecture and surveying
- scaffolding hire (with no labour)
- carpet fitting
- making materials used in construction including plant and machinery
- delivering materials
- work on construction sites that’s clearly not construction – for example, running a canteen or site facilities
CIS Deductions: Do them correctly
Making the correct Construction Industry Scheme (CIS) deductions is one of the schemes conditions. Make sure you do it correctly? Many don’t
Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC). Those deductions at 20% or 30% are made if the sub-contractor is not registered as a gross certificate holder.
Sub-contractors will typically invoice for their time, materials, travel and subsistence. If the sub-contractor is VAT registered, VAT this will also be included.
Many contractors and their advisors incorrectly apply the rules, and only apply deductions to the labour element.
This vlog on the Construction Industry Scheme (CIS) is essential stuff to know if you work for or in that sector.
Furthermore, you can improve your financial understanding and well-being. Plus make more profit, save tax and time, and your money mindset. How wonderful is that?
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