The Construction Industry Scheme (CIS) is a set of regulations that apply to contractors and subcontractors working in the construction industry in the UK. The scheme was introduced by HM Revenue & Customs (HMRC) to prevent tax evasion and ensure that workers in the construction industry are paid correctly and in compliance with tax regulations.
Under the CIS, contractors must register with HMRC and verify the tax status of their subcontractors before paying them. Subcontractors can be registered with HMRC as either sole traders or limited companies. Contractors must deduct a percentage of the payment they make to the subcontractor, which is called the CIS deduction, and pay it to HMRC.
The rate of the CIS deduction depends on the tax status of the subcontractor. If the subcontractor is registered as a sole trader, the CIS deduction is 20%. If the subcontractor is registered as a limited company, the CIS deduction is 30% for those who have not registered with HMRC or provided a valid Unique Taxpayer Reference (UTR) number, and 20% for those who have registered and provided a valid UTR number.
Contractors must also provide a monthly statement to their subcontractors, which shows the amount of the payment made, the amount of CIS deduction deducted, and any other deductions made. The statement must be provided within 14 days of the end of each tax month.
Subcontractors who are registered with HMRC can claim back any CIS deductions made from their payments against their tax liability. If the CIS deduction is more than their tax liability, they can request a refund from HMRC.
The CIS applies to most construction work, including building, civil engineering, and construction trades such as plumbing, carpentry, and electrical work. However, some types of work, such as professional services and materials supply, are not covered by the CIS.
If you work in the construction industry in the UK, it is important to understand the CIS regulations and comply with them to avoid penalties and fines from HMRC. You should seek professional advice from an accountant or tax advisor if you are unsure about how the CIS applies to your business.