Understanding the Construction Industry Scheme (CIS)

The Construction Industry Scheme (CIS) is a set of rules established by HM Revenue and Customs (HMRC) for contractors and subcontractors in the construction industry. Here’s a breakdown of how it works and who needs to register.

What is the CIS?

Under the CIS, contractors deduct money from subcontractors' payments and pass it on to HMRC. These deductions count as advance payments towards the subcontractor's tax and National Insurance contributions.

Who Needs to Register?

You must register with CIS if:

- You pay subcontractors for construction work.

- You've spent over ￡3 million on construction in the last 12 months.

Eligible entities include:

- Sole traders

- Partnerships

- Limited companies

Roles in the CIS

Contractors: These are businesses or individuals who pay subcontractors for construction work. Contractors must register with CIS and are responsible for deducting money from subcontractors' payments.

Subcontractors: These are businesses or individuals who provide construction services under a contract for specific tasks within a project. Subcontractors must also register with CIS if they want to avoid higher deduction rates.

Conclusion

Understanding and complying with the CIS is crucial for contractors and subcontractors in the construction industry. Registering and following the scheme's rules ensures that tax and National Insurance contributions are properly managed, helping to avoid potential penalties. For comprehensive guidance, refer to HMRC’s resources and ensure your business is operating within the legal framework of the CIS.