The Construction Industry Scheme (CIS) is a set of special rules for tax and National Insurance for those working in the construction industry. Businesses in the construction industry are known as 'contractors' and 'subcontractors' and should be aware of the tax implications of the scheme.
Under the scheme, contractors are required to deduct money from a subcontractor’s payments and pass it to HMRC. The deductions count as advance payments towards the subcontractor’s tax and National Insurance. Contractors are defined as those who pay subcontractors for construction work or who spent more than £3m on construction a year in the 12 months since they made their first payment.
Subcontractors do not have to register for the CIS, but contractors must deduct 30% from their payments to unregistered subcontractors. The alternative is to register as a CIS subcontractor where a 20% deduction is taken or to qualify for gross payment status whereby the contractor will not make any deductions, and the subcontractor is responsible to pay all their tax and National Insurance at the end of the tax year.
To qualify for gross payment status a subcontractor must meet certain criteria, including having paid their tax and National Insurance on time in the past and have a business that undertakes construction work (or provides labour for it) in the UK.
The subcontractor must also have a turnover of at least £30,000 for a sole trader (or higher depending on the structure of your business). An application for gross payment status can be made online or by post.
