What is the Construction Industry Scheme (CIS)?

Definition of the Construction Industry Scheme (CIS)

The Construction Industry Scheme (CIS) is a scheme that HMRC uses to collect Income Tax from subcontractors who work in the construction industry.

How the CIS works

Rather than employing staff, contractors in the construction industry often engage independent subcontractors to work on projects with them.

As these subcontractors are self-employed and are not employees of the contractor, they cannot make Income Tax and National Insurance contributions through schemes such as PAYE. Instead, HMRC uses the Construction Industry Scheme to collect tax contributions from these subcontractors.

Under the scheme, contractors deduct money from the amount they pay a subcontractor and then pay that money to HMRC.

An update to the Construction Industry Scheme was made on 1st March 2021 which requires VAT-registered contractors to apply the domestic VAT reverse charge on qualifying services supplied by VAT-registered subcontractors.

You can learn more about the Construction Industry Scheme on HMRC’s website.

Disclaimer: The content included in this glossary is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this glossary. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.

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