Understanding CIS Contractual Arrangements
The Construction Industry Scheme (CIS) requires contractors to deduct tax from payments made to subcontractors for construction work. However, understanding which contractual arrangements are caught by CIS can be complex.
The key question: Does the contract involve construction operations as defined by HMRC? If so, the contractor must verify the subcontractor with HMRC and apply the appropriate deduction rate.
What Counts as Construction Operations?
- Building, altering, repairing or demolishing permanent structures
- Installing heating, lighting, power, drainage or ventilation systems
- Internal and external cleaning during construction
- Painting and decorating as part of construction work
- Site preparation including foundations and earthworks
- Civil engineering works including roads and bridges
What Is Not Covered by CIS?
- Architecture and surveying work
- Delivery of materials without installation
- Manufacturing of building components off-site
- Carpet fitting (unless part of a larger construction contract)
- Work on oil or gas extraction installations
Contractor and Subcontractor Responsibilities
Verify the Subcontractor
Before making a payment, the contractor must verify the subcontractor with HMRC to determine the correct deduction rate.
Apply the Correct Deduction
Deduct tax at the appropriate rate: 0% (gross payment status), 20% (standard), or 30% (unregistered subcontractor).
File Monthly Returns
Contractors must file a monthly CIS return with HMRC by the 19th of each month, even if no payments were made.
Cloud Bookkeeper handles CIS returns for contractors and subcontractors as part of our monthly bookkeeping packages. View our Limited Company packages.