If you are a contractor, you must pay tax on all payments made to sub-contractors. However, if you’re a homeowner who engages a sub-contractor, you can make these payments gross. The Construction Industry Subcontractor Scheme is designed to make payments more efficient and reduce the risk of over-paying tax. To take advantage of the scheme, you must deduct the appropriate tax amount from the total amount of payments made to sub-contractors.
The CIS was implemented by Her Majesty’s Revenue and Customs (HMRC) in 1971 to combat misrepresentation in the construction industry. This is connected to illegal practices such as exploitation of work status and avoiding taxes. As such, the CIS has succeeded in halting unlawful practices and making the construction industry registerable. As a result, contractors must register with HMRC. Failure to register is punishable with a penalty of PS100 per month.
The Construction Industry Scheme allows contractors to claim tax relief on certain types of work, such as construction operations. Some contracts relate only to construction operations, such as building or clearing a site for construction. However, some contracts are not covered by the scheme. Tree felling, for example, does not constitute construction operations, but is part of the process of clearing land for construction. Payments made for tree felling can be included in the scheme. However, the rules on how much a business spends on construction cannot distinguish between a subcontractor and a contractor.
The Construction Industry Scheme also imposes certain rules for contractors. A contractor must make deductions in certain situations, including when making payments to a subcontractor. For example, payments made to a tenant for filling in a pipeline hole would not qualify for deductions under the scheme. But, a deemed contractor could pay a head teacher to supervise the construction activities. These are all cases where a contractor must apply for the scheme.
In addition to the construction industry scheme, other professionals can also benefit from it. Some of the professional work done by architects and surveyors is not covered by the scheme. They are not considered construction operations in their own right. Rather, they must be considered as part of an overall work and contract. One of the exceptions is carpet fitting. In this case, it must be part of a mixed contract that includes all finishing operations, such as carpentry, plastering, painting and drywall.
Subcontractors can also register voluntarily. CIS is applicable to projects with a cumulative expenditure of PS1 million or more over a three-year period. However, contractors are advised not to begin work on a project if they don’t have registered. It is important to note that the Construction Industry Scheme applies to subcontractors, as well. It also applies to individuals and business entities. The Construction Industry Scheme covers various types of projects, so subcontractors may want to be bound by it.