Construction Industry Scheme (CIS)

Construction Industry Scheme CIS Subcontractors Tax Deduction Building Industry Revenue Certificate
The Construction Industry Scheme (CIS) is a set of statutory provisions established to ensure tax is deducted at the basic rate from payments made to subcontractors in the building industry unless the subcontractor can provide a specific Revenue certificate. Implemented on 6 April 2007, the scheme helps to manage tax collection in the construction sector effectively.
On this page

Overview

The Construction Industry Scheme (CIS) is a framework designed by the UK’s Her Majesty’s Revenue and Customs (HMRC) to manage tax payments for subcontractors in the building industry. Under CIS, contractors are required to deduct tax from payments to subcontractors and pass it directly to the HMRC, unless the subcontractor has a specific CIS certificate that allows gross payments.

Examples

  1. Scenario 1: Contractor Deducts Tax:

    • A contractor hires a subcontractor for a demolition project worth £10,000.
    • The subcontractor does not possess a CIS certificate.
    • The contractor deducts 20% tax (£2,000) and pays the subcontractor £8,000, forwarding the £2,000 to HMRC.

  2. Scenario 2: Gross Payment With CIS Certificate:

    • A contractor hires a subcontractor for an electrical installation project worth £15,000.
    • The subcontractor produces a CIS certificate from HMRC.
    • The contractor pays the full £15,000 to the subcontractor without any tax deduction.

Frequently Asked Questions

What types of work fall under CIS?

CIS covers most construction work including site preparation, alterations, dismantling, construction, repairs, decorating, and demolition.

Can anyone get a CIS certificate?

No, a CIS certificate is issued by HMRC only to subcontractors who meet certain compliance and business criteria, indicating they are recognized as capable of handling their own tax affairs.

What is the tax deduction rate under CIS?

The standard tax deduction rate under CIS is 20% for registered subcontractors and 30% for those not registered.

Are there any exemptions to CIS?

Yes, certain types of workers and activities are exempt from CIS, such as non-construction-related professional services and private household work.

How frequently must contractors submit CIS returns to HMRC?

Contractors must submit monthly CIS returns to HMRC, detailing all payments made to subcontractors.

  • Contractor: An individual or business that arranges for construction work to be done.
  • Subcontractor: A subcontractor is hired by a contractor to perform part of the work.
  • Gross Payment Status: A status that allows subcontractors to receive payments without any deductions.
  • HMRC: The UK’s tax, payments, and customs authority that manages CIS compliance.

Online Resources

Suggested Books for Further Studies

  1. “UK Construction Industry Contracting” by Philip Raworth
  2. “Construction Contracts: Law and Practice” by John Adriaanse
  3. “Tolley’s Guide to the Construction Industry Scheme” by Suzanne J. Bevan

Construction Industry Scheme (CIS) Fundamentals Quiz

### Under the CIS, who is required to deduct tax from payments made to subcontractors? - [x] Contractor - [ ] Subcontractor - [ ] HMRC - [ ] Client > **Explanation:** Under the CIS, it is the responsibility of the contractor to deduct tax from payments made to subcontractors and pay it to HMRC. ### What is the standard tax deduction rate for a registered subcontractor without a CIS certificate? - [ ] 10% - [x] 20% - [ ] 25% - [ ] 30% > **Explanation:** The standard tax deduction rate for a registered subcontractor without a CIS certificate is 20%. ### When did the current Construction Industry Scheme (CIS) commence? - [ ] 1 January 2000 - [ ] 1 April 2005 - [x] 6 April 2007 - [ ] 1 July 2010 > **Explanation:** The current Construction Industry Scheme (CIS) started on 6 April 2007. ### What document must subcontractors produce to receive gross payments? - [ ] Invoicing Certificate - [x] CIS Certificate - [ ] Business License - [ ] Tax Registration Form > **Explanation:** Subcontractors must produce a CIS certificate provided by HMRC to receive gross payments without tax deduction. ### Which organization manages compliance with the CIS? - [ ] Construction Association - [x] HMRC - [ ] Local City Council - [ ] National Audit Office > **Explanation:** HMRC (Her Majesty's Revenue and Customs) manages compliance with the Construction Industry Scheme. ### What action must contractors take monthly regarding CIS? - [ ] Purchase a CIS license - [ ] Renew CIS registrations - [ ] Submit CIS returns - [x] Pay subcontractors directly only > **Explanation:** Contractors must submit monthly CIS returns to HMRC, detailing all payments made to subcontractors. ### Can private household work be exempt from CIS? - [x] Yes - [ ] No - [ ] Depends on the contract value - [ ] Only if the work lasts less than six months > **Explanation:** Certain types of work, including private household work, can be exempt from the Construction Industry Scheme (CIS). ### What is the higher tax deduction rate for subcontractors not registered with CIS? - [ ] 10% - [ ] 20% - [x] 30% - [ ] 35% > **Explanation:** The higher tax deduction rate for subcontractors not registered with CIS is 30%. ### Why is CIS important for the construction industry? - [ ] It provides more funding - [ ] It reduces competition - [ ] It standardizes tax compliance - [x] It provides direct supervision on-site > **Explanation:** CIS standardizes tax compliance within the construction industry by ensuring proper tax deductions and payments to HMRC. ### What happens if a contractor fails to comply with CIS rules? - [ ] They receive a warning letter - [x] They can face penalties and fines - [ ] They are exempt from tax for one year - [ ] They must hire new subcontractors immediately > **Explanation:** If a contractor fails to comply with CIS rules, they can face penalties and fines from HMRC.

Thank you for exploring the intricacies of the Construction Industry Scheme with us and testing your knowledge with our quiz questions. Continue learning and enhancing your expertise in this essential area of the building industry!

Tuesday, August 6, 2024
Construction Loan
Construction Industry Scheme (CIS)
Construction Industry Scheme (CIS) January 1, 1

Accounting Terms Lexicon

Discover comprehensive accounting definitions and practical insights. Empowering students and professionals with clear and concise explanations for a better understanding of financial terms.