Businesses in the construction industry are known as
'contractors' and 'subcontractors'. They include companies,
partnerships and self-employed individuals. Contractors pay
subcontractors for construction operations.
Taxpayers can act as both subcontractors and contractors at
the same time.
The Construction Industry Scheme does not apply to
construction operations carried on outside the United Kingdom.
'United Kingdom' means Great Britain and Northern Ireland; it does
not include the Irish Republic, the Isle of Man or the Channel
Islands. It does include the territorial waters of the United
Kingdom which, for the purposes of the Scheme, should be regarded
as extending only 12 miles from the high watermark.
A subcontractor who meets certain qualifying conditions may
be paid gross by the contractors for whom they work. Where the
subcontractor does not meet those conditions they can only be paid
after a deduction has been made from the payment.
If the subcontractor has not registered with HMRC, then the
deduction that a contractor has to make from payments to that
subcontractor must be at a higher rate than the standard deduction
rate.
See
CISR43000 onwards for the section
detailing the procedure for examining applications for gross
payment and the following sections for the conditions to be met in
the approval process:
Where the individual, partnership or company passes these tests,
the contractor can pay them gross, that is, with no deductions
taken from the payment. This also applies to bodies deemed 'gross'
such as local authorities and other public bodies (see
CISR13040).
Where a subcontractor may only be paid under deduction, the
contractor must make a deduction from the amount of the payment,
less the direct cost of any materials (exclusive of VAT) made to
that subcontractor. That deduction is made on account of the
subcontractor's tax and Class 4 NIC liabilities, if the
subcontractor is an individual or, on account of liabilities as an
employer or contractor, if a company.
Once registered for CIS, for either gross or net payment, it
does not mean that every contract undertaken by the subcontractor
can be taken to be one of self-employment.
In some cases the subcontractor's status may be that of an
employee. In those circumstances the employer should operate PAYE
on any payments under that contract. If you receive enquiries about
a subcontractor's employment status you should consider issuing the
following HMRC leaflets:
