The Construction Industry Scheme Explained

The Construction Industry Scheme Explained

17th November 2014

Chances are you’ve been hearing quite a bit in the news recently about the Construction Industry Scheme (CIS) which was brought in by HMRC to set out the rules for how payments to subcontractors for construction work should be handled by the contractors.  The Scheme is a way for HMRC to monitor the way in which subcontractors are paid in the construction industry and ensure that tax deductions are accurate.  

The scheme mainly applies to contractors and subcontractors in the mainstream construction arena.  However, some companies whose main activity is not construction but who have a high annual spend on construction may also be considered as contractors and fall under this scheme.  

Construction companies will need to register with and inform HMRC of payments made to subcontractors via monthly returns.  This means company records will need to be accurate and up to date at all times.  Documentation should be kept for up to four years in case HMRC needs to check them at a later date.

Before giving a subcontractor the first payment, construction industry contractors should verify them with HMRC to check if they are registered under CIS.  This can be done online, by telephone or via EDI (Electronic Data Interchange software).  
Contractors will need the following information at hand about the company and the sub-contractor:

•    The name of your company or organisation
•    Your Unique Taxpayer Reference UTR)
•    Your employer and accounts office reference number
•    The name of the subcontractor or the subcontracting company’s name
•    Their UTR
•    Their National Insurance (NI) number
•    In the case of partnerships, the name and NI number or UTR of their partner
•    Their company registration number where applicable

You’ll be asked by HMRC to confirm that the subcontractor has agreed to contract with your organisation and the details provided by you will be checked.  If the subcontractor is already registered under CIS, you will be provided with a verification reference number and advised on the amount of deductions that you should take from their pay.

The most convenient way in which to file monthly returns with CIS is to register for their online service.  Once registered it’s just a matter of providing details of all payments made to subcontractors every month.  Make sure that the figures you include are gross payment figures, rather than the amount after deductions, which will be recorded separately.

Providing the information digitally in this manner is by far the most convenient and cost effective method.  It means that the task can be done at a time that is most convenient to you and avoids information getting lost in the post.

Not all building work will need to be registered with CIS and the work included in the scheme is fairly broad, so it can be challenging to ascertain whether the Scheme affects your business.  We’ll cover this in our next blog post so that you can get a better idea of whether or not CIS applies to you.