Construction industry scheme—sub-contractors' obligations
Construction industry scheme—sub-contractors' obligations

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

  • Construction industry scheme—sub-contractors' obligations
  • Registering as a sub-contractor with HMRC
  • Registering for gross payment
  • HMRC annual review of gross payment status
  • Record keeping
  • Sub-contractors must still comply with their other UK tax obligations

This Practice Note sets out the obligations imposed by the construction industry scheme (CIS) rules on sub-contractors, including:

  1. registration

  2. the possibility of applying for gross payment status, and

  3. record keeping

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 by requiring the withholding of tax at source at the point of making a contract payment, thereby reducing the risk of a subsequent default by the sub-contractor. For the meaning of 'contract payment' and detail on the amount of the payment which is subject to withholding tax under the CIS rules, see Practice Note: Construction industry scheme—contract payments.

Unless a sub-contractor successfully applies to receive payments gross, (for which it must satisfy three tests outlined below in the section: registering for gross payment), payments by a contractor to a sub-contractor will be made:

  1. after deduction of tax at 30% if the sub-contractor:

    1. has not registered with HMRC

    2. has registered, but HMRC is unable to verify this because, for instance, the sub-contractor may have provided incorrect information, or

    3. was registered for deduction at 20%, but HMRC cancelled this—this is relevant only in serious cases, such as fraud, or providing