HMRC has strict laws called the Construction Industry Scheme (CIS), which govern how contractors in the construction industry manage to pay their subcontractors in the UK.
What difference does it make whether I’m a subcontractor or a contractor?
You must understand whether you are a contractor or a subcontractor under the regulations to pay the correct amount of tax and National Insurance. Under the Construction Industry Scheme, contractors take money out of the invoices of their subcontractors and send it to HMRC through CIS returns, kind of like how tax and National Insurance are taken out of employees’ pay by their employer. These deductions are an advance payment on the subcontractor’s tax bill for the year.
How much does the Construction Industry Scheme (CIS) take out?
This depends on whether or not the subcontractor is registered with the Construction Industry Scheme. Before any work is done, the contractor must check with HMRC to ensure that the new subcontractor is registered and pays taxes.
This CIS registration status is important because it affects how much the contractor must take off the subcontractor’s invoice before paying it.
If a subcontractor is registered for CIS, the contractor must take 20% of the invoice’s value away before paying them.
When a subcontractor isn’t signed up for CIS, the contractor has to take 30% out of the payment. Ouch!
How do I know if the Construction Industry Scheme (CIS) classifies me as a subcontractor?
A subcontractor is a business or organisation that commits to carry out construction work on behalf of a contractor, according to the Construction Industry Scheme (CIS).
You can still be a subcontractor for CIS even if you hire employees or other subcontractors to help you finish the work. You could accept the contract as a self-employed sole trader, through your own limited company, or as another type of business structure, such as a partnership. Also, subcontractors can:
- A company or group that uses its workers to do construction work for a contractor or gives those workers to a contractor. This is different from an agency that “introduces” someone so that the contractor will hire them.
- A local authority or some other type of public organisation
- A gang leader (sometimes called ” “gang”r”) is hired to organise and oversee a group of people.
Is a subcontractor the same as a full-time worker?
No, working as a subcontractor is not the same as working for a contractor directly. Instead of being your boss, the contractor is your client.
When you agree to work as a subcontractor for a company, it is the contractor’s job to determine if you are an employee. To do this, they should use the Confirmation of Employment Status Tool (CEST) from HMRCIt’s’s not up to them to decide!
What about a contract makes it not subject to CIS?
CIS rules don’t apply to every contract, like when a trust or charity pays for the work. There are also times when HMRC will make an exception to CIS for a contract.
For example, suppose a contractor pays a subcontractor to do work worth less than £1,000 on property the contractor owns. In that case, the subcontractor is considered ” “work”r” (not including the cost of materials). But exemptions don’t happen alone, so you’ll need to call the CIS helpline at 0300 200 3210.
Is CIS just used in the UK?
Yes, the Construction Industry Scheme only applies to work done in the UK. CIS won’t apply if a UK company has a contract to work overseas. On the other hand, CIS might apply to a company from outside the UK that builds something in the UK.
As a subcontractor, what do I need to do?
A subcontractor is a business or organisation that commits to carry out construction work on behalf of a contractor, according to the Construction Industry Scheme (CIS). You’ll also need to inform the contractor you’re working for so they can check you’re registered with CIS. The information you provide depends on how you operate your business:
Sole trader: Your Unique Taxpayer Reference (UTR) and National Insurance numbers.
Limited company: Name of the company, registration number, and UTR number
Partnership: The name of the nominated partner, the partnership’s trading name and the UTR number
Do I need to submit a CIS return?
The contractor must submit a CIS return each month, so you don’t need to worry about that bit as a subcontractor. You will still need to submit your business tax returns as usual.
The good news is that if you overpay tax through CIS during the year, you’ll be able to claim a tax rebate once you submit your return. Yet another reason to get it in as early as possible!
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