The following Tax practice note provides comprehensive and up to date legal information covering:
This Practice Note sets out the obligations imposed by the construction industry scheme (CIS) rules on sub-contractors, including:
the possibility of applying for gross payment status, and
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:
after deduction of tax at 30% if the sub-contractor:
has not registered with HMRC
has registered, but HMRC is unable to verify this because, for instance, the sub-contractor may have provided incorrect information, or
was registered for deduction at 20%, but HMRC cancelled this—this is relevant only in serious cases, such as fraud, or providing false or incorrect
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