Overview
The Construction Industry Scheme (CIS) is a framework designed by the UK’s Her Majesty’s Revenue and Customs (HMRC) to manage tax payments for subcontractors in the building industry. Under CIS, contractors are required to deduct tax from payments to subcontractors and pass it directly to the HMRC, unless the subcontractor has a specific CIS certificate that allows gross payments.
Examples
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Scenario 1: Contractor Deducts Tax:
- A contractor hires a subcontractor for a demolition project worth £10,000.
- The subcontractor does not possess a CIS certificate.
- The contractor deducts 20% tax (£2,000) and pays the subcontractor £8,000, forwarding the £2,000 to HMRC.
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Scenario 2: Gross Payment With CIS Certificate:
- A contractor hires a subcontractor for an electrical installation project worth £15,000.
- The subcontractor produces a CIS certificate from HMRC.
- The contractor pays the full £15,000 to the subcontractor without any tax deduction.
Frequently Asked Questions
What types of work fall under CIS?
CIS covers most construction work including site preparation, alterations, dismantling, construction, repairs, decorating, and demolition.
Can anyone get a CIS certificate?
No, a CIS certificate is issued by HMRC only to subcontractors who meet certain compliance and business criteria, indicating they are recognized as capable of handling their own tax affairs.
What is the tax deduction rate under CIS?
The standard tax deduction rate under CIS is 20% for registered subcontractors and 30% for those not registered.
Are there any exemptions to CIS?
Yes, certain types of workers and activities are exempt from CIS, such as non-construction-related professional services and private household work.
How frequently must contractors submit CIS returns to HMRC?
Contractors must submit monthly CIS returns to HMRC, detailing all payments made to subcontractors.
Related Terms
- Contractor: An individual or business that arranges for construction work to be done.
- Subcontractor: A subcontractor is hired by a contractor to perform part of the work.
- Gross Payment Status: A status that allows subcontractors to receive payments without any deductions.
- HMRC: The UK’s tax, payments, and customs authority that manages CIS compliance.
Online Resources
- HMRC’s Official Guide to CIS: HMRC Construction Industry Scheme
- CIS Registration: Register for CIS
Suggested Books for Further Studies
- “UK Construction Industry Contracting” by Philip Raworth
- “Construction Contracts: Law and Practice” by John Adriaanse
- “Tolley’s Guide to the Construction Industry Scheme” by Suzanne J. Bevan
Construction Industry Scheme (CIS) Fundamentals Quiz
Thank you for exploring the intricacies of the Construction Industry Scheme with us and testing your knowledge with our quiz questions. Continue learning and enhancing your expertise in this essential area of the building industry!