CIS Contractors & Subcontractors
What is the Construction Industry Scheme (CIS)?
The Construction Industry Scheme (CIS) is a scheme set up by the HMRC where contractors in the construction industry deduct money from subcontractor payments. They will then pass this on to the HMRC.
These deductions will become advance payments towards the tax and national insurance of the subcontractor. Both the contractor and subcontractor should register for the scheme before beginning work.
What is a contractor?
A contractor is an individual or business that hires subcontractors to perform work on a construction project. Contractors are typically responsible for overseeing the project, managing resources, and ensuring that work is completed according to specifications and regulations.
It is the contractor’s responsibility to ensure that they deduct the required amount from the subcontractor payments and pass it on to the HMRC.
What is a subcontractor?
A contractor is an individual or business that hires subcontractors to perform work on a construction project. Contractors are typically responsible for overseeing the project, managing resources, and ensuring that work is completed according to specifications and regulations.
It is the contractor’s responsibility to ensure that they deduct the required amount from the subcontractor payments and pass it on to the HMRC.
IR35
There are many factors to consider in deciding if a contractor is caught by the notorious IR35 legislation.
Fundamental factors to consider:
- Control
- The right to get a substitute or helper to do the job
- Mutuality of obligations
Other factors to consider:
- Provision of equipment
- Financial Risk
- Basis of Payment
- Opportunity to profit from sound management
- Part and parcel of the organisation
- Right of dismissal
- Employee benefits
- Intention of the parties
- Length of engagement
What are the CIS deduction rates?
The deduction rates for CIS are as follows:
- 30% for unregistered subcontractors
- 20% for registered subcontractors
- 0% for subcontractors with ‘gross payment’ status.
Use our free CIS tax deduction calculator to work out any necessary tax deductions.
What is gross payment status?
For gross payment status, the contractor will pay the subcontractor in full, and it lies with the subcontractor to pay all their taxes and National Insurance at the end of the tax year through Self Assessment.
To qualify for this status, subcontractors need to demonstrate that:
- They are tax compliant (i.e. have a proven history of paying tax and National
Insurance on time) - Have a business based in the UK and in construction industry
- Have a bank account tied to their business
For gross payment status, the contractor will pay the subcontractor in full, and it lies with the subcontractor to pay all their taxes and National Insurance at the end of the tax year through Self Assessment.
To qualify for this status, subcontractors need to demonstrate that:
- They are tax compliant (i.e. have a proven history of paying tax and National
Insurance on time) - Have a business based in the UK and in construction industry
- Have a bank account tied to their business
These are often matters of general employment law, and not specific tax legislation. There is an enormous amount of Case Law in this area and the Taxman is not always right. They do not have the final say on whether somebody is caught by IR35 or not. We can argue your case for you.
The cost of employees and employers national insurance if you get it wrong are considerable as well as interest and penalties.
We can review your existing arrangements and give you our opinion on whether it will stand up to attack from the Revenue. We can help draft contracts for services to assist you and advise on how you can maximise your chances.
