If you work in the construction industry, whether a company, partnership or sole trader, you will need to consider whether to register with HMRC's under the Construction Industry Scheme (CIS). The CIS regulates the payments made by contractors to subcontractors, and is a way of deducting tax at source from the payer in order to prevent tax evasion by sub-contractors.
You are deemed a contractor under CIS if you engage subcontractors to perform any form of construction activity, whether you're in mainstream construction, such as property developers, or if during the course of your main business activity you spend £1 million a year on construction, as may be the case with a housing association for example.
Under the definition of construction work are included building, groundwork, alteration, decorating, repair and demolition.
Subcontractors are sole traders or companies that undertake construction work for contractors. All subcontractors must register for CIS in order to avoid a 30% tax deduction when paid by the contactor. Subcontractors registered under CIS will be taxed 20% at source unless they qualify for gross payments (see below).
If you're a self-employed subcontractor working in the construction industry, as well as registering as self-employed for Self Assessment, you will also need to register with CIS. You can register as self-employed and for CIS at the same time. To register as self-employed call the Newly Self-employed Helpline (0845 915 4515), alternatively you can follow HMRC's online guidance at www.hmrc.gov.uk/cis.
If you're already registered for Self Assessment and simply need to register for CIS either contact the CIS Helpline (0845 366 7899) or use the guidance on HMRC's website (as above). You will need both a National Insurance (NI) number and a Unique Taxpayer Reference (UTR).
Companies and partnerships working as subcontractors can also register for CIS using the same helplines and websites outlined above.
All subcontractors, whether individuals, partners or companies can apply for gross payments and receive payment from contractors with no deductions. To qualify for gross payments, subcontractors must pass three qualifying tests:
See HMRC's website for details on these qualifying tests.
Contractors should register with CIS before hiring any subcontractors. Registering as a CIS contractor is the same procedure as registering as a new employer. Follow HMRC's online CIS guidance at www.hmrc.gov.uk/cis. As a contractor you'll need to supply
Additional information will also be required depending on whether you're a sole trader, a partnership or a limited company. Refer to HMRC's website for specific details.
Before making any payments to subcontractors, the contractor must verify the subcontractor's status by calling the CIS Helpline or using HMRC's online CIS service.
Many businesses in the construction industry act as both contractors and subcontractors. In such cases they will need to follow the regulations of both contractor and subcontractor under CIS rules.