Contractors operating in the construction industry, and using subcontractors, are required to register for the Construction Industry Scheme (CIS) in order to deduct tax at source from the workers.
The construction industry scheme (CIS) is extensive and covers most work to either a permanent or temporary building/structure or civil engineering works such as roads and bridges.
Registered contractors must:
• Make deductions from payments to their subcontractors
• Pass these deductions on to HMRC on behalf of their subcontractors
• Submit monthly reports to HMRC detailing the amounts deducted and paid
These deductions count as advance payments towards the subcontractor’s tax and/or National Insurance contributions when completing their own personal tax returns.
Deductions are made at:
• 20% if subcontractor is also registered under the CIS
• 30% if subcontractor is unregistered
Subcontractors are not required to register for CIS but it is beneficial to register in order to avoid deductions being taken from pay at a higher rate.