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HMRC internal manual

Construction Industry Scheme Reform Manual

The Scheme: overview: broad outline of the Scheme

Businesses in the construction industry are known as contractors and subcontractors. They may include companies, partnerships and self-employed individuals. The legislation gives the terms ‘contractor’ and ‘subcontractor’ special meaning as described below:


A contractor is a business or other concern that pays subcontractors for construction work.

Contractors may be construction companies and building firms, but may also be Government Departments, local authorities, and many other businesses that are normally known in the industry as ‘clients’.

Non-construction businesses or other concerns are counted as contractors if their average annual expenditure on construction operations over a period of three years is £1 million or more.

Non-construction businesses or other concerns that spend less than an average of £1 million a year on construction work, and private householders, are not counted as contractors so are not covered by the Scheme.

There is more information about contractors at CISR12000 onwards.

Construction Operations

Contractors pay subcontractors for ‘construction operations’.

Some businesses may act solely as contractors or as subcontractors, but many act as both. This means they pay businesses below them and receive payments from a main contractor above them in a chain.

You should refer to CISR14000 onwards for more details of construction operations and the scope of the Scheme. Further details can also be found in Appendices A to C of the booklet CIS340 - ‘Construction Industry Scheme. Guide for contractors and subcontractors’.



Subcontractors are those businesses that carry out building work, known as ‘construction operations’ for contractors within the United Kingdom.

You should refer to CISR13000 onwards for more details of subcontractors and their role in the Scheme.

Just because someone is registered on CIS, it does not follow that they are always self-employed. It is the contractor’s responsibility to establish whether, in relation to a particular job or contract, the person is employed or self-employed. If they are employed, the PAYE system must be operated. The contractor should consult the CIS Helpline and/or the HMRC website if there is any doubt about this.

  • CIS Helpline on 0300 200 3210
  • CIS Website at


The Scheme

The Construction Industry Scheme is aimed at preventing evasion of tax by subcontractors working in the industry and who are unknown to HMRC. The essence of the Scheme is that deductions are made at one of two prescribed rates from payments made to subcontractors engaged in construction operations carried out within the United Kingdom.

There is, however, an important let-out under FA04/S60. Under this provision, subcontractors who satisfy certain conditions and whom HMRC has good reason to believe will pay tax on their profits through the normal processes are able to receive payments due to them in full. Such subcontractors are referred to as ‘Gross Payment subcontractors’.

Those subcontractors who do not meet the conditions to be paid gross are still expected to make themselves known to HMRC and register to be paid under deduction. Those subcontractors are referred to as ‘Net Payment subcontractors’ or ‘subcontractors paid under deduction’.

In addition to Gross Payment and Net Payment subcontractors, there are those subcontractors who have failed to register at all for the new Scheme. These subcontractors are known as ‘un-matched’ or ‘un-registered’ subcontractors. Un-matched subcontractors have deductions made from their payments at a higher rate until such time as they can be verified successfully.

See CISR40000 onwards for more information on the subcontractor registration process.