{"id":7794,"date":"2021-03-26T14:00:36","date_gmt":"2021-03-26T14:00:36","guid":{"rendered":"https:\/\/www.sage.com\/en-gb\/blog\/?p=7794"},"modified":"2023-07-18T10:29:11","modified_gmt":"2023-07-18T09:29:11","slug":"construction-industry-scheme-contractors","status":"publish","type":"post","link":"https:\/\/www.sage.com\/en-gb\/blog\/construction-industry-scheme-contractors\/","title":{"rendered":"Construction Industry Scheme: 6 key things for contractors to understand"},"content":{"rendered":"
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\n\t\t\t\t\t\t\tMoney Matters<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t
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\n\t\t\t\t\t\tConstruction Industry Scheme: 6 key things for contractors to understand\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t

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\n\t\t\t\n\t\t\t\t\"\"\t\t\t\tTim Cooper<\/span>\n\t\t\t<\/a>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n<\/div>\n\n\n\n

As a contractor in the construction industry, understanding tax systems may not always be your top priority, especially given other challenges such as the coronavirus (COVID-19) pandemic.<\/p>\n\n\n\n

But if you use subcontractors, you need to get to grips with the Construction Industry Scheme (CIS), as you are required to use it and comply with its rules.<\/p>\n\n\n\n

The CIS helps HMRC make sure construction businesses pay the right tax by requiring contractors to deduct tax at source from their subcontractors’ pay with a scheme that is similar to the pay as you earn (PAYE) system.<\/p>\n\n\n\n

To help you get clarity on the CIS, in this article we cover six topics for you to understand:<\/p>\n\n\n\n

1. What is the Construction Industry Scheme?<\/a><\/p>\n\n\n\n

2. The difference between contractors and subcontractors<\/a><\/p>\n\n\n\n

3. Making payment deductions<\/a><\/p>\n\n\n\n

4. Records you must keep<\/a><\/p>\n\n\n\n

5. What is the VAT reverse charge for construction?<\/a><\/p>\n\n\n\n

6. How to register for the Construction Industry Scheme<\/a><\/p>\n\n\n\n\n\n\n

1. What is the Construction Industry Scheme?<\/h2>\n\n\n\n

The Construction Industry Scheme sets out the rules for how you, as a construction contractor, must handle payments to subcontractors and certain other businesses.<\/p>\n\n\n\n

Contractors are responsible for registering with the scheme, deducting tax from your payments to subcontractors, and passing it to HMRC.<\/p>\n\n\n\n

All payments you make to subcontractors must account for the subcontractor’s tax status<\/a>.<\/p>\n\n\n\n

This may require you to make a deduction from your payments<\/a> to them, excluding the cost of materials. Your deductions count as advance payments towards the subcontractor’s tax and National Insurance.<\/p>\n\n\n\n

Work covered<\/a> by the CIS includes most construction jobs on a permanent or temporary building or structure, and civil engineering work such as roads and bridges.<\/p>\n\n\n\n

You don’t need to register for the scheme if you only do certain exceptional jobs<\/a>, such as surveying, architecture or delivering materials.<\/p>\n\n\n\n

The CIS does not apply to employees.<\/p>\n\n\n\n

New CIS rules are coming into force in April 2021. Read this CIS blog<\/a> to find out more.<\/p>\n\n\n

\n\tDownload your free Tackling the Construction Industry Scheme guide and discover how to stay on top of your legal responsibilities<\/a>\n<\/div>\n\n\n\n\n

2. The difference between contractors and subcontractors<\/h2>\n\n\n\n

Under the scheme, the terms subcontractor and contractor have special meanings that are wider than those generally used in the construction industry.<\/p>\n\n\n\n

What is a contractor?<\/h3>\n\n\n\n

For CIS purposes, a contractor<\/a> is a business or other concern that pays subcontractors for construction work.<\/p>\n\n\n\n

You should register for the CIS<\/a> as a contractor if you fall into this category, or if your business doesn’t do construction work but your average spend on construction is more than \u00a31m a year in any three years.<\/p>\n\n\n\n

What is a subcontractor?<\/h3>\n\n\n\n

A subcontractor<\/a> is a body or person who has agreed to carry out construction operations for a contractor.<\/p>\n\n\n\n

The subcontractor may operate in any way, including doing it themselves or using their employees or subcontractors.<\/p>\n\n\n\n

Registration requirements<\/h3>\n\n\n\n

Many construction businesses fall into both categories, in which case you must register as both, then follow the contractor rules when working as a contractor and follow the subcontractor rules when working as a subcontractor.<\/p>\n\n\n\n

3. Making payment deductions<\/h2>\n\n\n\n

Before deducting from a subcontractor’s pay, contractors should first verify the subcontractor<\/a> with HMRC, if necessary.<\/p>\n\n\n\n

Where they need to make a deduction, contractors must:<\/p>\n\n\n\n