Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Construction Industry Scheme Reform Manual

From
HM Revenue & Customs
Updated
, see all updates

The Scheme: overview: definitions and explanations of CIS terms

What is ‘a payment’?

A payment is anything paid out by the contractor, for example, cash, cheque or credit. An advance, a ‘sub’ or a loan is a credit and therefore a payment. This applies whether or not the payment is made directly to the subcontractor.

Where a payment is made to someone other than the subcontractor you should refer to the detailed guidance at CISR15050 onwards. Guidance on this is also available in paragraphs 6.4 to 6.6 of the booklet CIS340 - ‘Construction Industry Scheme. Guide for contractors and subcontractors’.

What is ‘not a payment’?

A ‘payment’ under the Scheme does not include the cost of materials, VAT, or an amount in respect of the Construction Industry Training Board (CITB) levy. Where a payment is made under deduction, and depending on the terms of the contract, the deduction should also apply to payments for subsistence and/or travelling expenses.

What is the ‘deduction’?

The term deduction means the amount that a contractor has to withhold, where appropriate, from a payment made to a subcontractor, on account of the subcontractor’s tax and class 4 NICs liability, or other, usually PAYE liabilities, where the subcontractor is a company. The deduction may be at the standard rate of 20% or at the ‘un-matched’ subcontractor rate of 30% depending on the circumstances, as described in the following paragraphs.

 

Rates of deduction

There are two rates of deduction depending on whether or not the subcontractor can be matched during the verification process by the contractor who is making the payment.

  • The standard rate of deduction, for registered and verified subcontractors, from 6April 2007 is 20%.
  • The higher rate of deduction, for subcontractors who are not registered for CIS, or who cannot be matched during the verification process, is currently 30%.

 

What is a ‘contract’?

A contract means any legally binding agreement or arrangement and is usually constituted through the process of ‘offer’, ‘acceptance’ and ‘communication of acceptance’ all of which may be achieved by word of mouth as well as in a written document.

There is a standard form of contract for labour-only subcontractors drawn up by the Joint Contracts Tribunal (JCT) for the construction industry.

 

What are ‘construction operations’?

The term ‘construction operations’ is defined in FA04/S74, which is reproduced in Appendix B of the booklet CIS340 - ‘Construction Industry Scheme. Guide for contractors and subcontractors’.

As a general guide, the term construction operations covers almost anything that is done to a permanent or temporary building, structure, work or civil engineering or installation in the United Kingdom or within its territorial waters (up to the 12 mile limit) including

  • construction
  • alterations
  • repairs
  • extensions
  • demolition
  • dismantling.

Anything done on a construction site in connection with construction work and under contract to the owner, client, main contractor or a subcontractor is likely to be a construction operation. The exceptions are types of work that are clearly not construction work, such as the running of site facilities such as canteens, hostels, offices, toilets and medical centres.

The table shown at Appendix C in the booklet CIS340 - ‘Construction Industry Scheme. Guide for contractors and subcontractors’, is a list of construction operations and shows which types of construction work are within the scheme and which are not. The list cannot include every possible construction job.

Remember that where a single contract relates to a mixture of jobs, all payments due under the contract are within the scheme, even if only one of the jobs is within the meaning of construction operations.

If there is any doubt as to whether a particular type of work is to be treated as coming within the scope of the Scheme, the contractor or subcontractor concerned should initially contact the CIS Helpline for advice.

  • CIS Helpline on 0300 200 3210.

More detailed guidance can be found in the section dedicated to ‘Construction Operations’ at CISR14000 onwards.