Produced by Tolley
  • 19 Oct 2021 23:20

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

  • CIS ― overview
  • Construction industry scheme
  • Contractors
  • Sub-contractors
  • CIS payments to sub-contractors
  • CIS returns and payment of tax
  • Late CIS returns
  • Late payment penalties
  • Incorrect CIS returns
  • Subcontractor’s tax position
  • More...

CIS ― overview

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 the interaction between the quarterly reporting requirements for employment intermediaries and CIS, see the end of this guidance note.

Construction industry scheme

In order to discuss CIS, it is important to define the terms.


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

The first point to note is that a contractor is not solely restricted to a person carrying on a business which includes ‘construction operations’.

Businesses whose trade does not normally involve building or construction, but whose annual expenditure on ‘construction operations’ exceeds a certain minimum level are referred to as ‘deemed contractors’, and also have to operate CIS. Up to 5 April 2021, this minimum expenditure level was £1m per annum (averaged over three years). From 6 April 2021, this limit was increased to £3m per annum, but the test must be applied over a rolling 12-month period. These limits may well catch big businesses such as banks, supermarkets or retailers. ‘Construction operations’ are defined in FA 2004, s 74.

Local authorities or Government bodies can also be regarded as contractors for the purposes of the scheme.

Home-owners who engage the services of sub-contractors to undertake building work on their own home are not regarded as a contractor for the purposes of the scheme. This means that the payments made to the

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