Construction Industry Scheme

For many years the construction industry was synonymous with back-handers and dodging tax. Individuals, particularly, could turn up on the site, declare himself self-employed and be paid gross for his work. He was operating outside the PAYE system. Some thirty years ago the Inland Revenue took action and the Construction Industry Scheme was born.

Under the scheme, businesses operating in the construction industry are known as either contractors or subcontractors and they may be companies, partnerships or self-employed individuals. Contractors pay subcontractors for construction operations and subcontractors are those businesses that carry out building work for contractors.

Before they can be paid under the Scheme, subcontractors must hold either a Registration Card or a Subcontractors Tax Certificate. To receive either a subcontractor must be registered with the Inland Revenue and only those meeting certain qualifying conditions will be issued by with Subcontractors Tax Certificates. Those who do not will be issued with Registration Cards. The conditions to be met for a certificate are designed not to penalise genuine freelance workers in the construction industry who keep their tax affairs up-to-date and in order.

Where a subcontractor holds a Registration Card, the contractor must make a deduction from all payments for labour of an amount on account of the subcontractor's tax and National Insurance contribution (NIC) liability. Where the subcontractor holds a Subcontractors Tax Certificate, the contractor will pay him or her gross.