Construction Industry Scheme

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The Construction Industry Scheme (CIS) is for Contractors and Subcontractors.  If you employ Subcontractors you would be classed as a Contractor.  It is compulsory for Contractors to enrol on the scheme.  Subcontractors do not have to enrol, however it is likely to be beneficial for them to do this.

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In the scheme, Contractors are responsible for submitting monthly returns stating how much they have paid each of their subcontractors.  They are also responsible for collecting tax from registered Subcontractors at 20%, with the exception of those with gross status, and unregistered Subcontractors at 30%.  Subcontractors can offset the tax taken from them under this scheme in their annual self assessment or corporation tax returns.

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The CIS scheme does not apply to Consultants or to certain trades within the Construction Industry.

 

Domestic Reverse Charge

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The Domestic Reverse Charge (DRC) Scheme was introduced to combat VAT fraud in the Construction Industry.  Subcontractors no longer need to add VAT to their supplies, the Contractor is responsible for adding this on and paying it over to HMRC.  This does not apply to supplies being made directly to the end user of the building.

The DRC scheme applies to most VAT registered businesses within the CIS scheme.