The Construction Industry Scheme or CIS was created by the HM Revenue and Customs (HMRC) to tax contractors and subcontractors.
This scheme aims to minimise tax evasion within the construction industry. Since there are so many self-employed workers, a system was created. Many non-construction businesses must submit to CIS if they spend £1,000,000 over a 3-year period. This includes money spent on things such as groundwork. Although subcontractors do not have to register, it benefits them in the long run. This is since without registration they would have a higher rate of deductions from their payments.
The type of construction work that is included in this scheme:
- Preparing sites
- Cleaning buildings
- Installing heating, power, water etc.
Depending on the job, registering is not an issue. For example, architecture and surveying are not affected by the scheme. Homeowners that are considering carrying out any renovation on their home do not have to be concerned about CIS. Nor do they if they are considering building a new one. This means that many contractors do not need to worry about the scheme. Unless, they are hiring other contractors as subcontractors.
The CIS reform affects businesses of all sizes, as well as individuals. Small businesses can be largely affected since a large percentage of their money goes towards expenses and the CIS payment. This means that they have less money to make any improvements to their businesses. The money does eventually return, usually a year later. However that money could have been used for something that the business really needed. Something that could get these small businesses bigger jobs.