Construction Industry Scheme: Challenges Confronting Contractors and Subcontractors

The construction society is not excuse from IR35, the intermediary legislation that makes sure correct payment of taxes and National Insurance Contributions (NICs) among the contractors, subcontractors, self-employed construction workers and people engaged in the field. But, they surely have a distinct legislation called Construction Industry Scheme (CIS). The implementation of CIS compelled construction firms and workers to follow the rules because the penalties impose by the HM Revenue and Customs (HMRC) may be severe. Construction is not constricted to the construction itself, alterations, repairs, extensions and demolitions of property and structures, along with installations of heating and lighting set up, painting and decoration.

The HMRC identified two classes of contractors engaging in the construction sector. One is referred to as the “mainstream” contractors, individuals who are managing business involving subcontractors working for constructions. Another is the “deemed” contractors, individuals who surely have average spending of around a million pound a year for three consecutive years on the building project, which may incorporate major business, housing associations and governmental departments. Charity institutions are definitely not excluded.

Those contractors are required to adhere to particular requirements like registration with the HMRC, seeing to it that subcontractors engaged with their enterprise are registered, compensate the subcontractors utilizing auto deduction of tax and NICs and submission of payroll declarations to HMRC on time.

On the reverse side, subcontractors, who are perhaps self-employed persons, single traders or partnerships, are classified as those doing the job under the contractors for construction. They have to be registered at HMRC and should notify the government agency of whatever updates to the business for instance business name and address and even business address.

Penalty for failing to adhere to CIS is uncompromising. Unfiled monthly payment return on or before the 19th of the contractors will likely have a penalty of around £3,000 for each. Whereas unregistered subcontractors will constitute 30% tax deduction unlike 20% for those registered.

Meanwhile, CIS’ definition of contractors and subcontractors often resulted to puzzlement stemming from the discrepancy in the contract terminology usage of the construction business. This takes contractors to conclude that they don't seem to be covered by the CIS scheme.

CIS has a positive influence to small construction company notably those not eligible for CIS certificate on account of the prerequisites of turnover test based on the assessment conducted by the HMRC. It further states that small and medium enterprises are equipped to compete on a more level playing field against larger CIS Certificate holding companies.

Any studies that manifest the positive impacts throughout the construction business, and even though others may examine CIS with several loopholes that make confusions, there are several challenges pointed to contractors and subcontractors linked to compliance, notwithstanding their particular professions. The vigorous works they are expected to work with are substantially more tiring, and grasping the terminologies and definitions that comprise the CIS can be as confusing as compliance. Thus, it will be logical to ask for experts’ advice or better yet get CIS service providers to complete the process so as they are able to work with their core functions with the construction profession. For subcontractors, through experts’ guidance as well, need to place themselves whether they should be covered by CIS or will they operate workers of the contractors.