Civil Engineering Reference
In-Depth Information
The CIS applies to payments by contractors to self-employed sub-contractors in
relation to construction operations. The terms 'contractor' and 'sub-contractor' have
particular meanings in the CIS, but these do not necessarily correspond with the way
thesetermsareusedintheconstructionindustry.
For CIS purposes, a contractor is merely a person who pays another person (a
sub-contractor) for construction services, and a sub-contractor is a person who
receives payment. It follows that for CIS purposes, the employer under a building
contract would be the contractor, and the main contractor would be a sub-contractor.
A main contractor could also be a contractor for the purposes of the CIS if it engages
sub-contractors.
Contractors for the purposes of the CIS include not just construction companies
and building firms but can also include 'deemed contractors', i.e. businesses whose
main trade is not construction-related but whose expenditure on construction
operations exceeds certain prescribed limits (currently £1 million on average over
a three-year period). This brings within the scheme bodies such as government
departments, local authorities and many businesses normally known in the industry
as 'clients'.
The CIS does not apply to employment contracts. If a contract is an employment
contract, the contractor is obliged to apply PAYE and deduct income tax and National
Insurance Contributions (NIC) from the payments made, and account to HMRC for
the employer's NIC.
19.2.2 How the CIS operates
Under the CIS, before making a payment to which the CIS applies, the contractor
must verify the payment status of the sub-contractor with HMRC, and:
•
pay the sub-contractor gross, if the sub-contractor is registered for gross payment;
•
pay the sub-contractor under deduction of tax at the lower rate of 20% if the
sub-contractor is registered for payment under deduction; or
•
pay the sub-contractor under deduction of tax at the higher rate of 30% if the
sub-contractor is not registered or cannot be 'matched' by HMRC's systems.
The amount to which the CIS deduction must be applied is the gross amount of the
sub-contractor's invoice less:
•
VAT;
•
the amount of Construction Industry Training Board levy they have paid;
•
amounts paid for materials, consumables stores, fuel used (except for travelling),
plant hire and manufacturing or prefabrication materials.
19.2.3 Verification
The verification process involves the contractor checking with HMRC the payment
status of the sub-contractor, i.e. whether tax should be deducted and at what rate.
