Construction Industry Scheme: What’s a “Deemed Contractor?”

Construction Industry Scheme Tax 

The Construction Industry Scheme Tax (CIS) is a set of taxation rules established by the HM  Revenue & Customs (HMRC), mainly for the construction industry. While CIS basically defines contractors and subcontractors as the main entities subject to the tax, there are other classifications.

One such designation is a “deemed contractor.” Who does that term apply to?

Defined by the HMRC

The HMRC defines a “deemed contractor” as a business that employs subcontractors and spends an average of at least £1 million over a three year period on construction work. Common businesses that fall under this category include property investors, banks, local authorities, housing associations, and government departments and other public bodies.

Rules to Follow

Deemed contractors are subject to the same rules as mainstream contractors. The HMRC requires that all contractors register, as well as verify that their subcontractors are registered.

Additionally, contractors are required to subtract the necessary deductions when paying subcontractors, pay the deductions to the HMRC, provide deduction statements to the subcontractors and submit monthly returns to the HMRC.

Tax Rebates

Both contractors and subcontractors can qualify for a CIS tax rebate. This is because companies are required to pay corporation tax, not income tax. Thus, if your business did not use subcontractors, you’ll receive all of the tax paid under CIS. 

If you did use subcontractors, you’ll be due a rebate that equals the amount of tax paid minus the amount of tax deducted from your subcontractors. The tax rebate is usually used to pay the corporation tax. 

However, the rebate is typically greater, leaving extra funds to go back into the business. Whether you are a contractor, deemed contractor or subcontractor, Taxback can help determine the amount of rebate you are owed. Contact us or use our free online tax rebate calculator.

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