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HMRC internal manual

Employment Status Manual

Particular issues: treatment of payments made under Construction Industry Scheme (CIS)

Paragraph 8 Schedule 12 Finance Act 2000/Section 54(2) ITEPA 2003

Regulation 7(2) SI 2000 No. 727

Section 559 ICTA 1988


Section 559 ICTA 1988 concerns payments within the construction industry between contractors and sub-contractors. Where this section applies and the intermediary is treated as a sub-contractor within the construction industry, then payments may be made to it by the client under deduction of tax.

In such cases, the deemed payment calculation is based upon the full amount of the company’s income before any such deduction rather than the amount received. The gross amount should be used in the calculation of the deemed payment at Step One. Credit for the tax deducted should be given in the normal way, as for any other company or partnership within the construction industry.

A new Extra Statutory Concession (ESC C32) has been introduced that affects companies that fall within the IR35 legislation and which suffer CIS deductions. Where deductions under the CIS provisions exceed the corporation tax payable, a repayment of CIS tax may be set off against the tax and NIC liability on the deemed payment. Without the ESC, such companies would be required to pay over the tax and NICS on the deemed payment when they expect to be entitled to a repayment of CIS deductions.

Further guidance on the application of ESC C32 can be found at ESM8400. For further guidance on the application of the Construction Industry Scheme you should refer to the CIS Manual.