The Construction Industry Scheme (CIS) was introduced by HM Revenue & Customs (HMRC) on 6 April 1997. It governs how gross or net payments are made by contractors to subcontractors in the construction industry based on the tax status of the subcontractor. Both contractors and subcontractors are required to register for CIS by HMRC.
The scheme encompasses all construction work carried out in the United Kingdom (UK), whether that is work done to a permanent building, to a temporary structure or in civil engineering. Work can include site preparation, general construction such as bricklaying, plastering and roofing, as well as extensions, decorating and demolition, erecting scaffolding and building bridges.
The ‘UK’ includes UK territorial waters up to the 12 mile limit. Although the scheme does not apply to construction work carried on outside the UK, a business based outside the UK and carrying on construction work within the UK is deemed to fall within CIS and must register accordingly.
Construction operations are defined in law by Section 74 Finance Act 2004.
A useful summary of those operations falling both inside and outside CIS can be found on the HMRC website and at Appendices B and C (pages 63 – 71 inclusive) of the HMRC CIS340 booklet called Construction Industry Scheme – Guide for contractors and subcontractors.
Aside from building contractors and subcontractors, some businesses find themselves caught by the scheme, even though they do not operate within what is traditionally perceived as construction work. This is because CIS also applies to businesses that spend more than an average of £1 million a year on construction over a 3 year period such as department stores, breweries and banks and also to labour agencies, gang leaders and some public bodies as well.
Author: Guy Smith, Senior Tax Consultant on the ReSource Tax and VAT Consultancy Team.