The Construction Industry Scheme (CIS) is a scheme introduced by HMRC that regulates the payments, which are related to building works. CIS does not apply to salaries since the Pay as You Earn (PAYE) system monitors payments to employees.
This Scheme affects businesses that are involved in the construction industry (i.e. contractors, subcontractors or both). It also affects any businesses that do not operate in the construction sector, but that are involved somehow in the construction work.
That usually applies to builders, property refurbishment, tradesmen, agencies supplying workers and decorators. It can also refer to any company that spends an amount of £1million or more per year over three consecutive years on building works.
If a company has subcontractors or invests significant amounts of construction work, it will be regarded as a contractor under the Construction Industry Scheme. On the other hand, the law recognises as subcontractors any business company that is subordinated to a contractor, for instance, a self-employed tradesman and smaller construction company follow under this category. These deductions count as advance payments towards the subcontractor’s tax and National Insurance.
Based on CIS a business can be both a contractor and a subcontractor. It is often the case when a firm works for a larger contractor and also subcontracts work out to self-employed individuals.
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