Construction Industry Scheme (CIS)

What is the CIS?

The CIS is operated by HM Revenue and Customs and is designed to ensure that payments made within the Construction Industry are subject to the correct level of tax.

Who does it cover?

The CIS applies to all businesses operating within the Construction Industry (and those carrying out activities covered by the scheme) in addition to public sector bodies, Housing Associations and some non construction businesses where annual expenditure on covered activities is in excess of £1M (averaged over three years).

What types of work does it cover?

The CIS applies to construction operations carried out within the UK and its territorial waters.

The scope of construction operations is broad and includes a wide range of activities. Generally the scheme will need to be operated in respect of building, alteration, demolition and civil engineering works. In most cases therefore it will be clear whether a specific activity is covered. However, it also covers many other types of work such as painting and decorating, the permanent installation of plant or electrical systems and the fitting of certain floor coverings for example. It therefore really is worth checking in the case of any doubt.

How does it work?

The CIS requires a Contractor to confirm the tax status of a Subcontractor with HMRC prior to making a payment. This process is referred to as “verification” and is carried out either on-line or over the telephone.

When a Contractor verifies a Subcontractor, HMRC will advise whether the payment may be made gross, or whether tax should be deducted and remitted to the Contractor’s usual HMRC Accounts Office. This is an important aspect of the scheme, as HMRC will usually seek to recover any amounts which a Contractor fails to deduct, directly from the Contractor rather than the Subcontractor receiving the payment. Penalties can also be imposed.

Contractors are also required to submit a monthly return to HMRC recording amounts paid to Subcontractors and relevant deductions made.

How Elysian can help

In addition to providing assistance with the day to day operation of the CIS, we can help with specific issues and questions. Aspects of the scheme which prompt the most questions include:

  • HMRC enquiries and reviews
  • Proposed withdrawal of a Subcontractor’s Gross Payment Status
  • Whether a specific activity is covered
  • Whether a business needs to operate the scheme
  • The treatment of materials and CITB Levy
  • The correct treatment of Labour Only Subcontractors
  • Overseas Contractors and works

A failure to operate the CIS correctly can be expensive, both in terms of making good any amounts which should have been deducted from payments made to Subcontractors and also in terms of the penalties which can be imposed by HMRC. Failures can also lead to the withdrawal of a Subcontractor’s own Gross Payment Status, resulting in possible cash flow issues and reputational risk.

It may therefore be beneficial for businesses and organisations operating the scheme to consider a review of their CIS compliance systems to reduce the risk of any such HMRC challenge.

Internet Marketing by 2buy1click Ltd