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The construction industry scheme (CIS) was devised to limit the amount of tax lost as a result of under-declarations or failures to notify chargeability by subcontractors, some of whom came to work in the UK for relatively short periods without paying any tax.

The scheme operates to withhold tax at source at the point of payment, thereby reducing the risk of a subsequent default by the subcontractor. Although, if the subcontractor can prove he has complied with his tax obligations and meets certain other tests (mainly around minimum turnover), he is able to receive payments gross.

Whilst this guidance note informally refers to any CIS withholdings as ‘tax’ deductions, strictly these deductions are made on account of tax or other similar liabilities. This means that CIS deductions suffered may be set against personal income tax or Class 4 national insurance liabilities, or indeed corporation tax liabilities if the recipient business is a company.

The scheme has undergone regular changes since its inception. The current regime came into effect on 6 April 2007.

For a summary of the