Are you a business owner who employs contractors or subcontractors? The Construction Industry Scheme (CIS) is a deduction scheme which involves tax being deducted at source from payments which relate to construction work.
The scheme applies to all payments made under a construction contract, and will apply to payments made by a contractor to a subcontractor. CIS does however not apply to employees, as these payments are covered by the Pay As You Earn (PAYE) system of deduction of tax at source.
In order for a subcontractor to receive gross payments they must pass a series of three tests. These are known as the business, turnover and compliance tests and serve to determine whether a CIS gross payment status should be issued.
If tax is deducted, then a subcontractor can treat this tax as income tax on profits. Alternatively, if the subcontractor is a company then the tax deducted can be treated as satisfying relevant liabilities, such as PAYE or National Insurance Contributions.
This gross payments status presents several advantages, albeit these are not available to all. Although the amount of tax ultimately paid on profits will be the same if you obtain CIS gross payment status, improvements in cash-flow and reductions in the cost of credit, such as overdraft interest, should easily make the application process worthwhile.
This scheme is continuing to affect business and if you would like to consult with one of our expert team, please contact Stipendia on 0845 308 2288 or visit our website – www.stipendia.org.uk. Our team of payroll specialists are on hand to guide through the compliance processes and provide expert assistance to ease the problems you’re facing.