CIS Scheme
CIS Scheme - so you know what you are involved with
The Construction Industry Scheme (CIS) is a tax initiative implemented by **HM Revenue and Customs (HMRC)** in the United Kingdom. It is designed to regulate how payments to subcontractors in the construction industry are handled for tax purposes. The scheme ensures that tax is deducted at source from payments made to subcontractors, helping to reduce tax evasion and improve compliance within the construction sector.
Key Features of the CIS Scheme:
1.Tax Deduction at Source:
- Contractors deduct money from a subcontractor's payments and pass it directly to HMRC as advance payments toward the subcontractor's tax and National Insurance liabilities.
- The deduction rates are typically:
- **20%** for registered subcontractors.
- **30%** for subcontractors who are not registered under the CIS.
- **0%** if the subcontractor has gross payment status (no deductions are made).
2.Registration
- Both contractors and subcontractors must register with HMRC to participate in the CIS.
- Subcontractors can apply for **gross payment status** if they meet certain criteria, such as having a strong tax compliance history.
3.Monthly Returns:
- Contractors are required to submit monthly returns to HMRC, detailing payments made to subcontractors and the tax deductions withheld.
- These returns must be filed even if no payments were made during the month.
4. Verification:
- Contractors must verify subcontractors with HMRC before making payments. This ensures the correct deduction rate is applied.
5. CIS Deductions as Advance Tax:
- The deductions made under the CIS count as advance payments toward the subcontractor's tax and National Insurance liabilities. Subcontractors must still file a Self Assessment tax return at the end of the tax year.
6.Scope of the Scheme:
- The CIS applies to most construction work, including building, alterations, repairs, demolition, and installation of systems like heating and lighting.
- It does not apply to certain types of work, such as architecture, surveying, or carpet fitting, unless these are part of a larger construction project.
Who is Effected?
- Contractors: Businesses or individuals who pay subcontractors for construction work.
- Subcontractor: Businesses or individuals who carry out construction work for contractors.
Benefits of the CIS:
- Helps subcontractors manage their tax liabilities by spreading payments throughout the year.
- Reduces the risk of tax evasion in the construction industry.
- Provides a clear framework for tax compliance.
If you are involved in the construction industry, it is important to understand your obligations under the CIS and ensure compliance with HMRC regulations.
