Construction industry scheme CIS

[edit] Brief description and background

The Construction Industry Scheme (CIS) sets out a series of rules for how contractors should make payments to sub-contractors.

The scheme was introduced in April 1997, by the Inland Revenue in order to try and prevent the loss of revenue to the Exchequer arising from payments between contractors not being properly accounted for for tax purposes. For all contractors and sub-contractors who fall within scope, the obligation to account properly for tax and to apply deductions from payments made is clear and severe penalties automatically arise if the provisions of the scheme are not followed rigorously.

The definition of 'contractor' for the purposes of the scheme includes not just organisations traditionally considered to be contractors who pay subcontractors for construction work, but any organisation who has spent more than £3 million on construction in the 12 months since making the first payment (for example local authorities).

Qualifying contractors are required to register under the Construction Industry Scheme with HM Revenue & Customs (HMRC) and to inform them of changes to their business.

Sub-contractors should register for CIS, if they do construction work for a contractor, if they do not register, they will suffer higher-rate deductions taken from their payments. If an organisation ior individual falls under both categories they must register as both.

[edit] Work 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

[edit] CIS exceptions

For certain jobs registration is not required, 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

[edit] Contractor obligations under CIS

• A contractor must register for CIS before taking on a first subcontractor.
• A contractor must check if a person should be employed instead of subcontracting the work, if they should be an employee a penalty may be deducted.
• A contractor should check with HM Revenue and Customs (HMRC) that subcontractors are registered with CIS.
• When a contractor pays a subcontractor, they usually need to make deductions from the payments and pay the money to HMRC. Deductions count as advance payments towards the subcontractor’s tax and National Insurance bill.
• A contractor needs to file monthly returns and keep full CIS records, a penalty may be liable if this is not done.
• A contractor must let HMRC know about any changes to their business.

[edit] Reform

In 2024 the case of Beech Developments (Manchester) Ltd & Ors v HMRC [2024] EWCA Civ 486, the Court of Appeal allowed the taxpayers' appeals and confirmed that HMRC does have the power to issue 'non-liability directions' under the Construction Industry Scheme (CIS). This meant that a contractor if faced with a regulation 13 determination must act quickly and appeal to the determination and apply for a regulation 9 direction. Once the regulation 13 determination is finalised, a regulation 9 direction will not have any effect. Following the case a number of 'beech' ammendments were made covering compliance to Regulation 9(5) directions including: direction under ‘Condition B’ at Regulation 9(4), co-ordination with Regulation 13(2) determinations, developments after refusals, directions under ‘Condition A’ at Regulation 9(3), and to regulation 13. In 2025 CIS Business helpdesk information was further claried.

In 2021 legislative changes were applied including a turnover test and penalties for false figures and application of the statutory test for ‘deemed’ contractor” status and how such a status ends, aswell as expenditure by certain businesses on their own property or 'own-build'. In 2022 a number of minor ammendments were made to the maniual and scheme.

In November 2020, the government published a draft finance bill which included proposed changes to the CIS to tackle abuse ensuring HMRC can act quickly where the rules are being broken. A clarification to the cost of materials provision will remove scope for different interpretations of the existing rule, and deemed contractor changes are designed to prevent manipulation of the current rules so that a business can avoid operating the CIS.. Ref https://www.gov.uk/government/publications/changes-to-tackle-construction-industry-scheme-abuse

The government announced at Spring Budget 2020 a consultation on measures to tackle abuse of the CIS. A consultation document was published 19 March 2020 setting out proposals to tackle this abuse. Due to coronavirus the consultation was extended until 28 August 2020.

From 2018 to 2020 various changes were made to the scheme and ammendments to the manual including sections covering construction operations in particular reverse premiums with examples of what does and does not constitute a reverse premium for CIS purposes.

On 16 April 2016 The Construction Industry Scheme Reform Manual was initially published it described the new Construction Industry Scheme (CIS) post April 2007, showing how payments would be taxed from 6 April 2007.

In November 2014, the Autumn Statement 2014 proposed a package of improvements to the Construction Industry Scheme to reduce the administrative burden on construction businesses.

In June 2014, the government launched a consultation into ways to improve the CIS by reducing the administrative burden it imposes. Some people within the industry have called for the scheme to be scrapped. Ref. Construction Enquirer Calls grow to scrap CIS tax scheme 11 July 2014. This consultation closed on 22 September 2014.

This article was originally created by:--Martinc 17:59, 19 June 2013 (BST)

[edit] Related articles on Designing Buildings

• CIS contractors and CIS sub-contractors.
• Contractor.
• Construction Industry Scheme or IR35?
• Earned value.
• Housing Grants Construction and Regeneration Act.
• Intermediaries legislation.
• IR35: essential steps for compliance.
• Fair payment practices.
• Payment notice.
• Pay-less notice.
• Remedies for Late Payment.
• Scheme for construction contracts.
• Sole trader.
• Sub-contractor.
• Umbrella companies.

[edit] External references

• HMRC: Construction Industry Scheme.
• Cantor Atkin: CIS Scheme assistance.
• Payroll Heaven: CIS Returns Service