Why does the CIS exist?
The CIS was introduced in the early 1970s in response to a significant loss of revenue in the construction industry. Irish Roadworking gangs came to the UK as self-employed workers, but many avoided paying income tax. They registered under fake names like Donald Duck or Mickey Mouse, and cash payments were made through lump sums by the gang masters. This led to a substantial amount of uncollected tax. To address this, the government implemented the Construction Industry Scheme, which requires construction firms and contractors to deduct tax from subcontractors and directly pay it to the revenue. Subcontractors then offset this deduction against their own tax liabilities. The purpose of the scheme is to collect taxation from the construction industry.
Contractors engaged in construction activities, including building, repairing, demolishing, road works, power lines, and installations of systems like heating, electrical, or air conditioning, are obligated to register for the CIS. They must also make deductions from payments to subcontractors. The scheme doesn’t apply to contractors’ employees, as their taxation is accounted for through PAYE.
What is the definition of ‘construction’ work?
The regulations say that the construction, alteration, repair, extension or demolition of any works forming or to-form part of the land, including walls, roadworks, power lines, electronic communication apparatus, aircraft runway stops, harbors etc – so virtually any construction operation you can think of. Also the installation of heating systems, electrical systems and air conditioning systems are all covered under the Construction Industry Scheme. Contractors are obligated to register within the Revenue if they perform these operations.