Any type of business, whether a sole trader, a partnership or a company, can be a Construction Industry Scheme (CIS) contractor.
Once that business falls within the scope of CIS as undertaking construction operations, it is then considered to be either a mainstream contractor or a deemed contractor.
A mainstream contractor runs a business that engages subcontractors for construction operations.
A deemed contractor is a business which spends an average of £1 million or more a year, over a three year period, on construction operations.
Businesses which build or conduct construction work belong within CIS, along with property developers who build or alter properties to make a profit, gang leaders who organise labour for construction work and foreign businesses that fulfil construction work within the UK or its territorial waters.
Perhaps less obviously, the following types of business also fall within the mainstream contractor definition:
- Utilities (gas, electricity, water etc.).
- Telecommunications (undertaking works forming part of the land).
- Transport network and infrastructure (construction of roads, motorways, railways, docks, harbours and airports).
Businesses which spend over £1 million a year, on average, in the period of three years ending with their last accounting date are also caught by CIS.
Such businesses often include:
- Non construction businesses such as large manufacturing concerns, department stores, breweries, banks, oil companies and property investment companies.
- Local authorities.
- Housing associations.
- ‘Arms length’ management organisations (ALMOs)
The business or organisation remains a deemed contractor until it can demonstrate to HMRC that its spending on construction work has fallen below £1 million a year for three years in a row.
Registering for CIS as a contractor
All building contractors (whether mainstream or deemed) must register with HMRC for CIS because all payments made by contractors to subcontractors must take account of the subcontractors’ tax status.
The tax status is important because it helps determine whether the contractor has to make a deduction from the payment to be made, or if the payment can be made gross without deduction.
Further detailed information on registering for CIS as a contractor can be found on the HMRC website.
Author: Guy Smith, Senior Tax Consultant on the ReSource Tax and VAT Consultancy Team.