The CIS scheme covers most construction work include site preparation, decorating and refurbishment. Contractors may be property developers, builders, gang masters or agencies. If their business is construction and they pay subcontractors for construction work, then they are “mainstream contractors”. Organisations whose main activity is not construction but who have spent more than £3m on construction in the 12 months since they made their first payment are known as “deemed contractors” (e.g. housing associations, management organisations, local authorities or government departments).

Contractors need to register with HMRC before taking on their first subcontractor and they need to verify whether they should be “employing” the person or recruiting them as a “subcontractor”. There are hefty fines for making the wrong decision. Contractors are also required to check if the subcontractors they are taking on are themselves registered under the CIS. Contractors are required to make certain deductions from the amounts paid to subcontractors and these are 20% for registered subcontractors, 30% for unregistered subcontractors and 0% if the subcontractor is a “gross payment” subcontractor. Certain payments made by the subcontractor on his invoice can be deducted in calculating the withholding tax charge.