The construction industry scheme—when does it apply?
The construction industry scheme—when does it apply?

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

  • The construction industry scheme—when does it apply?
  • What are construction operations?
  • To whom does the CIS scheme apply?
  • Contractors
  • Householders not contractors in respect of private works
  • Sub-contractors
  • Sub-contractors cannot be employees

The construction industry scheme (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.

Unless the sub-contractor to whom a payment is made is registered for gross payment, the scheme requires a contractor who makes a payment under a construction contract to withhold tax at source at a rate of:

  1. 30%, or

  2. if the recipient sub-contractor is registered with HMRC, 20%

from so much of the payment as does not represent the cost of materials used in carrying out the construction operations.

Imposing the tax at the point of payment reduces the risk of a subsequent default by the sub-contractor. If the sub-contractor can prove he, or if a company, it, has complied with his/its tax obligations he/it can apply to receive payments gross.

For more detail on the obligations imposed by the CIS rules, the conditions that must be satisfied for a sub-contractor to be registered for gross payment and what types of payment are exempt from withholding tax imposed by the CIS rules, see Practice Notes:

  1. Construction industry scheme—contractors' obligations

  2. Construction industry scheme—sub-contractors' obligations, and

  3. Construction industry scheme—contract payments

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

This Practice Note covers:

  1. the meaning of construction operations, and

  2. to whom the CIS rules apply

For a list

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