Understanding the CIS

The construction industry scheme (CIS) is a tax-withholding scheme applied to contractors and subcontractors in the construction industry. Both contractors and subcontractors must register with Her Majesty's Revenue & Customs (HMRC) before engaging in construction.

The contractor must make a deduction from all labor-related payments of an amount representing the subcontractor's tax and national insurance contributions liability. In some cases, contractors can pay gross to subcontractors who meet certain qualifying requirements, with no amounts deducted. Subcontractors who are not registered under the scheme can still be paid for work done, but the deductions are at a higher rate.

At the end of each tax month, the contractor must submit a monthly return to HMRC that shows all payments made to subcontractors and all deductions that were made. Contractors must also submit to their subcontractors a document that shows the deductions made from their payments.

Consult with HRMC for the requirements for deductions and to verify the status of your subcontractors.

The following flowchart illustrates the process flow for the CIS: