The Construction Industry Scheme (CIS for short) is a tax deduction scheme that can help sub-contractors in the construction industry pay less tax. In simple terms, it involves tax being deducted at source from payments related to construction work. It is important to note that employees cannot be covered by this scheme due to them being part of the PAYE system already for tax purposes.
The Construction Industry Scheme applies to payments from the main contractor to the sub-contractor. There are three tests the sub-contractor must pass in relation to turnover, business and compliance along with registering with HMRC officially. If all this is done, the sub-contractor will receive gross payments from the contractor.
Even if the three tests are not passed, the sub-contractor can still register with the HMRC for CIS payments but at a lower level of 20% rather than purely gross payments. This is still lower than the usual 30% though and so worthwhile for many sub-contractors.
The Construction Industry Scheme payments apply for any payments made under a construction contract and is relevant where one party is the contractor and the other the sub-contractor. It is also important to remember that some payments are exempt from the Construction Industry Scheme guidelines. A simple example of this is that of a business that is not in the construction business but pays for building work on a property it owns and uses for their own business purposes. This would not be eligible to make a CIS payment against under the rules of the Construction Industry Scheme.
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