The Construction Industry Scheme (CIS) is a set of special rules for tax and National Insurance for those working in the construction industry. Businesses in the construction industry are known as 'contractors' and 'subcontractors' and should be aware of the tax implications of the scheme.

Under the scheme, contractors are required to deduct money from a subcontractor’s payments and pass it to HMRC. The deductions count as advance payments towards the subcontractor’s tax and National Insurance. Contractors are defined as those who pay subcontractors for construction work or who spent more than £3m on construction a year in the 12 months since they made their first payment. A contractor can be a sole trader, in a partnership or own a limited company.

New contractors must follow these rules:

1. They must register for CIS before they take on their first subcontractor.
2. They must check if they should employ the person instead of subcontracting the work. They may get a penalty if they should be an employee.
3. Check with HM Revenue and Customs (HMRC) that their subcontractors are registered with CIS.
4. When they pay subcontractors, they will usually need to make deductions from their payments and pay the money to HMRC. Deductions count as advance payments towards the subcontractor’s tax and National Insurance bill.
5. They need to file monthly returns and keep full CIS records – they may get a penalty if they do not.
6. They must let HMRC know about any changes to their business.