
When you begin to navigate the intricacies of taxation in the construction sector, you quickly realise it’s not a straightforward journey. There are peculiar regulations, deductions, and reliefs that apply uniquely to contractors, subcontractors and businesses working under the Construction Industry Scheme (CIS). A firm grasp of the general principles helps you make better decisions, whether you are assessing profitability, planning cash-flow or preparing for a tax liability.
What Is the CIS and Why Does It Matter?
The Construction Industry Scheme (CIS) is a system introduced by HMRC aimed at ensuring that tax is deducted at source from payments made by contractors to subcontractors. It applies to most construction work, such as site preparation, demolition, repairs, decorating, and alterations. Contractors are required to register with HMRC, verify subcontractors, make monthly returns, and withhold a percentage of payments to subcontractors (or pay gross in certain cases). Over- or under-withholding, incorrect reporting or failing to verify subcontractors can lead to penalties or interest.
Tax Implications for Contractors and Subcontractors
Contractors typically deduct 20% (or 30% for unverified subcontractors) of a subcontractor’s gross payment for labour costs, passing that withholding to HMRC. For subcontractors, this withheld figure is not a final tax – …
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