What is the Construction Industry Scheme (CIS)?

Full answer

The Construction Industry Scheme (CIS) is a tax withholding and reporting framework operated by HMRC that applies to payments made by contractors to subcontractors in the construction industry. **How it works:** 1. A **contractor** (someone who pays subcontractors) must register for CIS. 2. Before paying a subcontractor, the contractor must verify the subcontractor with HMRC. 3. The contractor deducts tax at source and pays it to HMRC on the subcontractor's behalf. **Deduction rates:** | Subcontractor status | Deduction rate | |---|---| | Gross payment status | 0% | | Registered with HMRC | 20% | | Not registered with HMRC | 30% | **Monthly CIS return:** Contractors must file a **CIS300 monthly return** by the **19th of each month** (22nd for electronic filing) detailing all payments made to subcontractors in the prior tax month. **How subcontractors reclaim overpayments:** CIS deductions are credited against the subcontractor's tax liability. Sole trader subcontractors reclaim the overpayment via their **Self Assessment return**. Limited company subcontractors offset deductions against PAYE/NI owed to HMRC. **Gross payment status:** Subcontractors who pass HMRC's compliance tests (turnover above £30,000 for sole traders, clean tax history) can apply for gross payment status — they receive the full payment and pay tax themselves through SA. **Employed vs self-employed test:** CIS only applies to genuinely self-employed subcontractors. HMRC uses the employment status tests (control, substitution, mutuality of obligation) — a misclassified worker could result in the contractor owing PAYE tax plus penalties.

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