Construction industry scheme ― overview

By Tolley

The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Construction industry scheme ― overview
  • Construction industry scheme
  • CIS payments to sub-contractors
  • CIS returns and payment of tax
  • Sub-contractor’s tax position
  • Reporting requirements for employment intermediaries from April 2015

The construction industry scheme (CIS) was devised to limit the amount of tax lost as a result of underdeclarations 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 they have complied with their tax obligations, they are able to receive payments gross.

The scheme has undergone regular changes since its inception and a new 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?

A contractor is not solely restricted to a person carrying on a business which includes ‘construction operations’.

A contractor also includes businesses whose trades do not normally involve building or construction, but whose annual expenditure on ‘construction operations’ (averaged over three years) exceeds £1 million (which will catch big businesses such as banks, supermarkets or retailers). ‘Construction operations’ are defined in FA 2004, s 74.

FA 2004, s 59(1)(l)

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

FA 2004, s 59(1); CISR12050

Homeowners 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 sub-contractor for carrying out the work may be made gross.

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