The Construction Industry Scheme (CIS) is a set of special rules for handling payments for construction work that contractors make to subcontractors. The scheme covers all 'construction operations' - construction work - carried out in the UK, as well as some other related work.

If your business is involved with construction operations then it might operate as a contractor or as a subcontractor - or as both. The terms construction operations, contractor and subcontractor have special meanings under CIS and they're defined in the rules of the scheme. So you'll need to know when you're working as a contractor and when you're working as a subcontractor. This guide will help you decide.

When are you a contractor under CIS?

Under the rules of CIS, you're a contractor if:

  • you run a business that engages subcontractors for construction operations - a 'mainstream' contractor
  • you run a business that spends an average of £1 million or more a year over a three year period on construction operations - a 'deemed' contractor

Any type of business, including a company, partnership or self-employed individual, can be a CIS contractor. If you are contracted to work in domestic households and you engage subcontractors you are a CIS contractor and will have to operate CIS. However, if you’re a private householder you’re not a contractor, no matter how much you spend.

Other organisations, like local authorities, can also become contractors if they spend £1 million or more a year on construction work.

The CIS rules set out in detail the types of work that are construction operations covered by the scheme. As a general guide, almost any type of work that you do to a permanent or temporary building or structure - or to a civil engineering work or installation - is covered by CIS.

See an index of construction operations in HMRC's CIS Manual

Mainstream contractors

Businesses that include construction operations are called mainstream contractors. As well as businesses like builders that do construction work themselves and pay others to do it too, mainstream contractors include:

  • property developers and speculative builders who build or alter properties to make a profit.
  • gang leaders who organise labour for construction work - gang leaders are subcontractors as well as contractors.
  • foreign businesses that do construction work in the UK, or in UK territorial waters.

Deemed contractors

Other businesses and organisations that are contractors because they spend a substantial amount on construction work are generally known as deemed contractors. Some examples of businesses and organisations that can become deemed contractors if they spend enough on construction work include:

  • businesses like manufacturers or retailers
  • local authorities
  • government departments
  • housing associations and 'arm's length' management organisations (ALMOs).

If your business or organisation becomes a deemed contractor then it'll remain one until it can show HMRC that its spending on construction work has fallen below £1 million a year for three years in a row.

Find out about operating as a deemed contractor

When are you a subcontractor under CIS?

CIS uses its own special definition of the term subcontractor. So even if you don't normally think of yourself as a subcontractor, you could be treated as one under CIS.

Under the rules of CIS, you're a subcontractor if you agree to do construction work for a contractor. It doesn't matter how you actually carry out the work - you could do it yourself, get your employees to do it, use your own subcontractors or make some other arrangement.

Subcontractors can be self-employed individuals, any type of business, or other bodies and organisations. Some examples of construction industry subcontractors include:

  • sole traders, partnerships and companies that do construction work for contractors
  • labour Agencies and staff bureaux that use their own workers to do construction work for a contractor - or that supply (but not just introduce) workers to a contractor
  • gang leaders who contract to do work for a contractor and are paid for the work done by their gang
  • foreign businesses paid to do construction work in the UK, or in UK territorial waters
  • local authorities and public bodies that do construction work for someone else

Labour agencies

If your business is a labour agency that supplies construction workers to contractors, you're a subcontractor if the workers are contracted to your agency. But if you just introduce the workers to the contractor who then contracts with them directly, you’re not a subcontractor.

There are special CIS rules for agency workers in the construction industry.

Gang leaders

If you're a gang leader and you're paid by contractors for construction work that your gang members do then you're a subcontractor. But if a contractor makes a separate agreement directly with one of your gang members then that gang member becomes the subcontractor.

You can call HMRC's CIS Helpline for more information about paying gang members.

Local authorities and public bodies

Local authorities - and their direct services or labour organisations - can be construction industry subcontractors if they do construction work for someone else. Public bodies and their subsidiaries can be subcontractors too.

See a list of local authorities and public bodies that are subcontractors in HMRC's CIS Manual

Are you a subcontractor or employee?

CIS only applies to construction workers who are self-employed - it doesn't cover employees. So if your contract is a 'contract of employment' then you're an employee and CIS doesn't apply to that contract. Instead you'll pay any tax you owe through PAYE (Pay As You Earn).

Employment status - whether you're self-employed or an employee - is covered by general law. Your own employment status will depend on the terms of each engagement you undertake. It's quite possible to work as a self-employed subcontractor on one contract and then as an employee on the next.

When you're working for someone else, it's important to know whether you're working as a self-employed contractor or as an employee. The HMRC's website has guidance to help people decide their employment status, including an employment status indicator tool.

If you're a construction industry contractor it's your responsibility to decide on an individual's employment status when you take them on.

When are you both a contractor and a subcontractor?

You may well be a contractor and a subcontractor at the same time. It's quite commonplace for construction businesses to be paid by a contractor for doing construction work, while at the same time paying their own subcontractors to do work for them. When you're being paid by a contractor to do construction work you're a subcontractor and you must follow the CIS rules for subcontractors. When you're paying your own subcontractors you're a contractor and you must follow the CIS rules for contractors.

Situations when CIS doesn't apply

Certain types of work that are linked to the construction industry aren't covered by the CIS. For example, professional work done by businesses like architects and surveyors isn't covered. Fitting flooring like laminate and vinyl is covered by the scheme, but carpet fitting isn't.

There are some situations when a business or organisation that would normally be a mainstream or deemed contractor may not have to apply the CIS rules for contractors. For example, certain businesses that would otherwise be deemed contractors don't need to apply the scheme when they pay for construction work on property used for the purposes of their own business. The types of property covered by this exemption include offices, warehouses and nursing homes, as well as other facilities used by the business.

The normal CIS rules for contractors also don't apply when:

  • a deemed contractor pays for a small construction contract of less than £1,000 - excluding materials costs - and has authorisation from HMRC to exempt it
  • a contractor pays a subcontractor less than £1,000 - excluding materials costs - to do construction work on the subcontractor's own property - or on any agricultural property where the subcontractor is the tenant - and has authorisation from HMRC to exempt it
  • the governing body or head teacher of a local education authority maintained school pays for construction work on behalf of the local education authority
  • a charitable body or trust - but not its trading subsidiary - pays for construction work

Private householders are never treated as CIS contractors, no matter how much they spend on construction operations.

See an index of construction operations in HMRC's CIS Manual

HMRC has a CIS Helpline for contractors, subcontractors and other people who need more information about the CIS. The Helpline can also advise you if you're still unsure whether you're a contractor or a subcontractor under the CIS.

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