Construction industry scheme—contractors' obligations
Construction industry scheme—contractors' obligations

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • Construction industry scheme—contractors' obligations
  • Registering as a contractor with HMRC
  • Verifying employment status of sub-contractors
  • Verifying payment status of sub-contractors
  • Deducting tax from contract payments
  • Paying tax withheld to HMRC
  • Recovery of CIS under-deductions
  • Statements to sub-contractors
  • Monthly CIS returns to HMRC
  • Record keeping

This Practice Note details the obligations imposed by the construction industry scheme (CIS) rules on contractors, covering the requirement to:

  1. register as a contractor

  2. verify the employment status and CIS payment status of its sub-contractors

  3. where relevant, deduct tax from payments made to sub-contractors

  4. pay the withheld tax and submit CIS returns to HMRC on a monthly basis, and

  5. preserve tax records

The CIS was devised to limit the amount of tax lost as a result of sub-contractors in the construction industry under-declaring or failing to notify their chargeability to UK tax.

For an overview of how the CIS works, see Practice Note: Construction industry scheme—overview.

The scheme operates to withhold tax at source at the point of making a 'contract payment', thereby reducing the risk of a subsequent default by the sub-contractor. However, if the sub-contractor can prove it has complied with its tax obligations, and applies for gross payment status, it is able to receive payments gross.

The obligation to deduct tax imposed by the CIS rules applies only to a contract payment made by a contractor. Furthermore, the tax deduction is not applied to the gross amount of the contract payment, but to a smaller sum, net of the direct cost of materials and certain other costs. For more information on what payments constitute contract payments and what deductions to make from