Sub-contractors under the construction industry scheme

By Tolley

The following Employment Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

Sub-contractors under the construction industry scheme
Who is a sub-contractor?
Registering as a sub-contractor under the CIS
CIS payments to sub-contractors
HMRC checks of gross payment status
Sub-contractor’s tax position

The construction industry scheme (CIS) was devised to limit the amount of tax lost as a result of under-declarations or failures to notify chargeability by sub-contractors who came to work in the UK for relatively short periods without paying any tax.

The scheme operates to withhold tax at source at the point of payment, thereby reducing the risk of a subsequent default by the sub-contractor. Although, if the sub-contractor can prove he has complied with his tax obligations, he is able to receive payments gross.

The scheme has undergone regular changes since its inception and the current regime came into effect on 6 April 2007.

For a summary of the CIS, see the Construction industry scheme overview guidance note.

Note that a consultation took place in the summer of 2014 to ‘improve the operation of the CIS for smaller businesses’, resulting in various changes to the regime, with some only coming into effect from the start of the 2016/17 tax year. This guidance note makes clear where the regime has changed recently under the relevant headings.

Consultation on Improving the operation of the Construction Industry Scheme (CIS)

Who is a sub-contractor?

A party to a contract relating to construction operations is a sub-contractor if he is under a duty to the contractor to carry out the operations, or to furnish his own labour or the labour of others in carrying out the operations. A contract relating to construction is a broad term, it can include contracts which cover a range of activities of which construction operations form only a component part.

FA 2004, s 58

Where sub-contractors provide labour other than just their own, they may themselves also be contractors. For more on contractors and their responsibilities, see the Contractors under the construction industry scheme guidance note.

For the CIS to apply to the sub-contractor,