Construction industry scheme CIS

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 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, but any organisation that spends more than an average of £1 million a year on construction operations over a three-year period (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 do not have to register for CIS, but if they do not register, they will suffer higher-rate deductions taken from their payments.

Contractors then have certain obligations, including;

Checking with HMRC that sub-contractors are registered under the Construction Industry Scheme (this can be done on the HMRC website);
Paying sub-contractors in accordance with procedures laid down by HMRC once the sub-contractor has been verified. These include procedures for making deductions and for issuing payment and deduction statements, and
Submitting monthly CIS returns to HMRC giving details of payments made to sub-contractors under the scheme.

NB: 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.

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.