Historically, rightly or wrongly, the perception was and still is that the construction industry is rife with a micro cash black economy and the CIS scheme was designed to counter this.

All businesses, which include companies, partnerships and sole traders, that come under the scope of the scheme must register as either as a Contractor, a Sub Contractor or both if applicable.

Depending on the business status under CIS, when a payment is received by a Sub Contractor from a Contractor for construction work carried out, tax can be deducted at either 0% 20% or 30% by the Contractor and paid over to HM Revenue and Customs (HMRC).

Contractors submit monthly returns to HMRC and pay over to HMRC whatever tax has been deducted from the Sub Contractors during that month.

For the avoidance of doubt these tax deductions will be treated as payments on account towards the relevant Sub Contractor’s overall tax liabilities.

There are numerous punitive penalties for failure to comply with the scheme and HM Revenue & Customs’ powers to remove the gross payment status (0% tax deduction) for a Sub Contractor can result in adverse cash flow problems and possibly put the Sub Contractor out of business.

We deal with numerous building businesses both large and small and as a result have extensive experience of CIS and can advise on all aspects of the scheme.