A Complete Guide to Construction Industry Scheme That Contractors Must Know 

Like any other work process, the construction industry scheme also holds a guide to give light to contractors and sub-contractors under which they can operate. The main taxation guidelines and deductions implementation not only help the general public but also acknowledge the rights of people directly dealing in building the carcass of your dream house or apartment. 

The Picture of a Dream House with A Taxing Puzzle 

Whether renting out an apartment or building a luxury flat, you need sub-contractors and contractors to be a part of your journey. From building the carcass of your living space to decorating it with beautiful tiles and chips, you are entitled to pay a tax on each item purchased. Moreover, you are also entitled to pay tax on the services provided to you to fulfill your dream of a perfect house. So, everything to an end-user comes with a Value Added Tax or VAT from moving to raw material purchase to service handling. 

Construction Industry Scheme –C.I.S. 

The construction industry scheme is a scheme that depicts a particular set of rules that displays how a contractor must handle payments to sub-contractors for their work or services being provided to end-users. Mainly the contractors offer a deduction in the payment as an advance payment of tax from the sub-contractor to HMRC.  

The advance payment done by the contractor to the sub-contractor includes an additional value that is not directly related to items or service charges. Instead, it is a pre-determined tax amount encapsulating the charges of the sub-contractor by HMRC. 

So in the whole loop of money transfer, the end hole always lies in HMRC’s pocket, collecting tax throughout the corporate world. The construction industry scheme manages all the money transfer paths and lets them reach safely to HMRC’s pocket. 

The Assorted Business Included in The Scheme 

Apart from contractors and sub-contractors, there are many other working firms included in the construction industry scheme category. A lot of work is required in building a flat or an apartment from its base to its heights. So, in addition to building and decorating, you might be looking forward to someone who can install a cooling system into your apartment to take a step toward a more serene and peaceful place. Companies offering such services, either installing a heating or a cooling system, can be a part of the construction industry scheme. 

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A Broader Perspective 

The construction industry scheme cannot be minimized to only contractors and sub-contractors. The United Kingdom government opens a classic chance for self-employed people to dig into something exciting. Whether you are hiring a self-employed individual or an artist to paint your walls and other décor ideas, the scheme applies to both on the same badge. 


Apart from self-employed individuals, you can take services from people in partnership. Having different businesses included in this scheme opens a chance for the mixed variety to each individual according to their taste and requirement. Some people want and afford to install sheets onto their walls, while others can go for tiles and branded paints. Covering walls can be done in multiple ways, and so are different business people involved in the construction business. 

Can Some Business Be Working Both as A Contractor and Sub-Contractor? 

Generally, contractors are separated from sub-contractors in terms of conditions. If a company spends more than 3 million pounds over twelve months in the construction industry, that dealing person is referred to as a contractor. On the other hand, the people or small businesses who provide services to end-users and leading landlords are specified as sub-contractors. 

Is this possible that the same company can work as a contractor and a sub-contractor? The answer is yes. There are a lot of businesses in the United Kingdom that pay other businesses for the services provided to the end-users. And in some other projects, they are paid by other businesses for themselves providing services to end-users. In this way, a company can act as contractors and sub-contractors and be dealt with accordingly. 

Keep An Eye in Which Shoe You Are Placing Your Feet 

Rules for contractors and sub-contractors are different. In terms of VAT Reverse Charge, there are some critical updates that contractors and sub-contractors need to know. Whenever a business is working as a contractor, the rules and conditions of contractors will be followed. Likewise, whenever a company is dealing in the shoes of sub-contractors, the sub-contractors terms and conditions should be followed. Before initiating a transaction, the ranks and places should be pre-defined because HMRC might not tolerate a single mistake if you are working. Your company needs to have a more sensitive concern in this matter. 

Registration And Verification 

As the construction industry scheme displays that contractor must be registered. Still, the sub-contractors don’t need to get registered as many self-employed individuals indulge in this category. But sub-contractors registration comes with a considerable benefit cutting almost ten percent of the tax demand. So to avail of benefits or reduce tax, sub-contractors should get registered and gain the benefits. 

Deduction Investigation 

As discussed earlier, a specific individual can work as a contractor and a sub-contractor; therefore, the process of verification is highly suggested. It is crucial to verify the position of the contractor and the sub-contractor. Moreover, it is also essential to verify the registration of the sub-contractor before deducting the payment because the charges in both conditions will be different from each other. 

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Major Concerns 

One of the major concerns while dealing with construction industry schemes is keeping track of payments required in the field. All of these deductions depend on the tax status of the sub-contractor. These deductions, as said earlier, are an advance payment from the contractor to HMRC encapsulating the subcontractor’s tax liabilities and National Insurance Contributions. So the deductions are way more than the original service charge. 

Contractors Working Procedure 

Once the deal is finalized between contractor and sub-contractor on a specific service related to construction, the number one thing that needs to accomplish is the calculation of deductions. These deductions are dependent on the registration status of the sub-contractor. The next step is to execute the deduction while making the calculation. And the third step concludes the recording process of these deductions into invoice making process. 

It should be mentioned what the gross price and the total price of the service were and what amount was deducted in the tax. Finally, make payment and tell the sub-contractor about the deduction. At last report HMRC, about the deductions and pay tax accordingly. The overall process should be mistake-proof to ensure smooth handling. 

Filing A Return 

Conditions might occur where a contractor may not need to make any deduction. Even that condition must be mentioned in the invoice. After making the invoice properly, the contractors must file a return to HMRC depicting every procedure executed. The contractors must file a return to HMRC every month showing the construction industry scheme’s payments. In case no payment was made, even that condition must be reported. 

The file consists of different affirmation categories. The affirmations include the status of the sub-contractors and an investigation of the status. Moreover, it includes the deduction information and the payments made to the specific sub-contractors, either registered or non-registered individuals. 

The Final Destination of Tax Money –HMRC 

The final process of the construction industry scheme lies in the pocket of HMRC. Contractors make payments on behalf of sub-contractors to HMRC. These payments are proof that no one in this tax circle goes tax-free. Apart from exemptions and zero-rated V.A.T., every individual pays the tax directly or indirectly. 

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Always Keep Tax Experts at Your Hand 

While building a phenomenal building, you need not only money or contractors or sub-contractors but also tax experts. The professionals are as important as other workers who spend their day and night building your dream into reality. Although working with tax professionals doesn’t seem incarnated, their services help you save money that you can ultimately use to make the next step in the construction work. 

Tax professionals provide excellent services in terms of awareness and making ways out of a challenging situation. They also let you know what’s more important to you. In this way, they give you a direction to know your V.A.T returns and make payments accordingly. If you are having a tough time with contractors or as a contractor, your company can quickly look for tax experts in UK and handle your problem with them. They can give you the best possible solutions by making legal moves. 

 Moreover, you can also tale help from tax professionals before registering your company or filing a return to HMRC. All these steps are crucial and depict a more calculated move. You can easily handle such situations by handing over the situation to the hands of tax professionals and remold your agendas according to their guidelines. It will be worth it! 


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