CIS ― contractors

Produced by Tolley

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

  • CIS ― contractors
  • Who is a contractor?
  • Registering or deregistering as a contractor
  • Subcontractors
  • Construction operations
  • When is payment for construction operations ignored for the purposes of the CIS regime?
  • Multiple contractors
  • Overseas contractors
  • What are the contractor's responsibilities under the CIS?
  • Registering with HMRC for the CIS
  • More...

CIS ― contractors

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 subcontractors 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 subcontractor. Although, if the subcontractor can prove he has complied with his tax obligations and meets certain other tests (mainly around minimum turnover), he is able to receive payments gross.

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

For a summary of the CIS see the CIS ― overview guidance note.

Who is a contractor?

Only contractors are required to withhold tax on payments to subcontractors, so who is classed as a contractor?

A person carrying on a business which includes ‘construction operations’ is known as a ‘mainstream’ contractor and is obliged to operate the CIS rules. For example, this includes those businesses whose income comes from undertaking construction work and those who build or substantially renovate property in order to sell it.

In addition, businesses whose trade does not normally involve building or construction, but whose annual expenditure on ‘construction operations’ exceeds a prescribed minimum level are also ‘deemed’ to be contractors. Up to 5 April 2021, this de minimis level was £1m per annum (averaged over the last three years). From 6 April 2021, this lower expenditure limit was increased to £3m per annum, albeit this sum may now be calculated over any rolling 12 month period.

Although they are not businesses within the ordinary meaning of the term, most public bodies such as local authorities or Government departments are regarded as contractors for the purposes of the scheme. However, this is also subject to their annual expenditure exceeding the ‘deemed contractor’ de minimis limit (see above).

Homeowners who engage the services

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