CIS: Who is a Subcontractor?Print

In its own notes covering the Construction Industry Scheme (CIS) even HMRC readily admits that the CIS 'uses its own special definition of the term subcontractor'. So although you may not think of yourself or your company as a subcontractor, it may well be that under CIS rules you are classified as such.

Type of business

In essence a subcontractor is: "any individual, body or organisation that is paid to undertake construction work by a contractor."

Any type of business can be classified as a subcontractor, whether a sole trader, partnership, or limited company. Subcontractors, therefore, aren't solely self-employed individual workers moving from construction job to construction job, they can be large corporate bodies, who will still need to register as subcontractors on the CIS scheme to ensure tax is deducted at the appropriate rate.

Confusion can also arise when the individual or body contracted to do the construction work further subcontracts the task to a third party. For example, although labour agencies and gang leaders may not perform the building work themselves, the fact that they are paid by the contractor for the work ensures that they are classified as subcontractors. Even local authorities and some other public bodies that perform construction work can be classed as subcontractors.

Contractor and subcontractor

It's quite possible for an individual, body or organisation to be a contractor and a subcontractor at the same time. For example a small building firm may be contracted by a local authority to carry out some maintenance work on council property. They must therefore register as subcontractors under CIS rules. At the same time if they then subcontract elements of the maintenance work, to a self-employed electrician for example, they must also register as contractors before the electrician can start work.

Failure to register

Any individual or organisation contracted to do construction work that fails to register as a subcontractor under CIS rules will automatically have tax deducted at a higher rate. When contractors 'verify' with HMRC the payment status of the subcontractors working for them, if you or your company aren't registered the contractor will automatically deduct 30% tax rather than 20%; or if you fulfill certain criteria, you can be registered for gross payment and have nothing deducted. In addition to registering for CIS, sole traders must also be registered as self-employed for Self Assessment.

It's important to note that the CIS scheme only applies to payments made by registered contractors to subcontractors. Any work carried out for a private householder does not fall within the CIS scheme.

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The information contained in this article is intended to provide only a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. The author and the publisher disclaim all responsibility for any loss arising from any action taken or not taken by anyone using the information in this document