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Construction Industry Scheme (CIS) is a scheme that governs how payments must be made to subcontractors who work in the construction industry. Under the CIS, contractors must deduct money from the payments made to their subcontractors and send it to HM Revenue and Customs (HMRC). The scheme is designed to prevent tax evasion among construction workers.

As a contractor under the CIS scheme, it is important to understand the definition of a CIS contractor. According to HMRC, a CIS contractor is anyone who pays subcontractors for construction work. This includes businesses that carry out construction work themselves, as well as those who hire subcontractors to carry out the work on their behalf.

In order to be classified as a CIS contractor, a business must meet certain criteria. Firstly, the business must spend an average of at least £1 million a year on construction operations over a three-year period. This includes the cost of materials, labour, and other expenses related to the construction work. If a business does not meet this requirement but expects to, it can still register for the CIS scheme in advance.

Once a business is registered as a CIS contractor, it must deduct tax from the payments made to subcontractors. The amount of tax to be deducted is based on the subcontractor’s gross payment status. If the subcontractor is registered with HMRC as a CIS subcontractor, the contractor must deduct 20% from their payment. If the subcontractor is not registered, the contractor must deduct 30%.

It is important for CIS contractors to keep accurate records of all payments made to subcontractors. This includes the amount paid, the amount of tax deducted, and the subcontractor’s details. These records must be kept for a minimum of three years and made available to HMRC upon request.

In conclusion, if you are a contractor in the construction industry, it is important to understand the definition of a CIS contractor and the requirements of the CIS scheme. By registering and complying with the scheme, you can avoid penalties and ensure that your business operates within the bounds of the law. Keep accurate records and stay up to date with any changes to the scheme to ensure smooth operation of your business.