The new Construction Industry Scheme (CIS) took effect from 6th April 2007. This sets out the rules for how payments to subcontractors for construction work must be handled.
The old scheme relied heavily on the use of paper vouchers as evidence of payments between contractors and subcontractors. In the new scheme there are no CIS cards, certificates or vouchers.
Contractors who are about to start work within the construction industry should register for the scheme with the HMRC. Contractors must ‘verify’ new subcontractors via the HMRC. There is a higher rate tax deduction if the subcontractor cannot be matched on the system.
All payments made from Contractors to Subcontractors must take account of the subcontractor’s tax status as determined by the HMRC. This may require the Contractor to make a deduction, which they then pay to the HMRC from that part of the payment that does not represent the cost of materials incurred by the Subcontractor. The deduction rates for the new scheme are 20% for Subcontractors registered with HMRC for payment under deduction and 30% for those not registered.
Contractors require to submit monthly return to the HMRC showing payments made to subcontractors. Nil returns must be made if there are no payments to be made in any month.