Construction Industry Scheme (CIS)
Real Estate and Construction • Tax • Tax Disputes and Investigations
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Here is what you need to know about the Construction Industry Scheme (CIS) and how we can help ensure your business remains compliant with the scheme.
If you are a contractor in the construction industry, it is crucial to be aware of your obligations under the CIS to avoid non-compliance penalties imposed by HMRC and (in the case of sub-contractors) ensure the correct deductions are made.
What is CIS?
CIS is a tax deduction scheme first introduced in 1971 to regulate and streamline tax collection within the construction industry. Under CIS, contractors are required to deduct a percentage from payments made to subcontractors to cover their tax and National Insurance Contributions liabilities. Subcontractors registered under the scheme will see 20% of their payments withheld for tax purposes. This increases to 30% for unregistered subcontractors. Contractors are then responsible for paying these deductions to HMRC each month alongside a monthly CIS return, which details the payments and deductions made.
Who does CIS apply to?
CIS applies to almost all businesses operating in the construction industry, including building construction work, site preparation, decorating, repairs and refurbishment, staffing agencies that supply labourers and more. CIS can also apply to non-construction business in certain situations, The requirements of CIS differ depending on whether a business is a contractor or subcontractor, and some businesses may be considered both at the same time. The criteria for CIS can be complicated to navigate for contractors and subcontractors alike, so it is important that businesses are aware of the rules and seek specialist advice if they are unsure whether they need to register with the scheme.
Why is HMRC investigating?
HMRC has launched a new campaign sending 'nudge letters' to encourage companies to review and correct any errors in their CIS declarations. Whilst the campaign has been introduced to initially target insurers, HMRC’s efforts may extend to other CIS-registered companies suspected of underreporting CIS deductions. HMRC’s increased activity and intensified scrutiny of businesses operating in the construction industry highlights the importance of ongoing compliance with CIS rules. Businesses should proactively review their processes and seek advice from a specialist adviser if they need help navigating the CIS rules and requirements.