CIS ― subcontractors

Produced by Tolley

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

  • CIS ― subcontractors
  • Who is a subcontractor?
  • Overseas subcontractors
  • Registering as a subcontractor under the CIS
  • CIS payments to subcontractors
  • Gross payment status
  • Deduction of tax at a rate of 20%
  • Deduction of tax at a rate of 30%
  • Incorrect reporting of the tax withheld from the subcontractor
  • HMRC checks of gross payment status
    • More...

CIS ― subcontractors

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 they have complied with their tax obligations, they are 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 CIS ― overview guidance note.

Who is a subcontractor?

A party to a contract relating to construction operations is a subcontractor if they are under a duty to the contractor to carry out the operations, or to furnish their 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.

Where subcontractors provide labour other than just their own, they may themselves also be contractors. For more on contractors and their responsibilities, see the CIS ― contractors guidance note.

For the CIS to apply to the subcontractor, they must not be employed by the contractor. Employment status is a contentious area in tax and this is especially the case with the CIS.

The legislation places the onus on the contractor to determine whether the subcontractor is employed or not. If they are deemed to be employed by the contractor, they should be placed on the payroll and income tax and NIC deducted under PAYE. If they are found to be self-employed, the CIS rules apply and the contractor must then verify the payment status of the subcontractor. See the CIS ― contractors guidance note for more details.

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