Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC).

The deductions count as advance payments towards the subcontractor’s tax and National Insurance. Contractors must register for the scheme. Subcontractors do not have to register, but deductions are taken from their payments at a higher rate if they’re not registered. 

– Registered subcontractors have deductions taken at the standard rate of 20%.

– Unregistered subcontractors face a higher deduction rate of 30%.

– These deductions are not the final tax liability but are counted as advance payments.