If you operate in the construction industry or do construction-related work, you may need to register with HMRC as a contractor or sub-contractor. The Construction Industry Scheme (CIS) is a taxation scheme for individuals and businesses, including sole traders, working within the construction industry. It sets out the rules for how payments to subcontractors for construction work must be handled by contractors.
A contractor is a business or other concern that pays sub-contractors for construction work. A subcontractor is a business that carries out construction work for a contractor. You can work as both contractor and subcontractor.
The CIS covers all construction work carried out in the UK (and its territorial waters up to the 12-mile limit) and covers many operations such as site preparation, demolition, construction and repairs. All types of sole traders that work within the construction industry are covered by the scheme including self-employed individuals.
The operations carried out (either as defined in your contract or the operations actually undertaken if different) determine whether the work is within the scheme or not. Some activities on construction sites are not regarded as construction operations under the CIS. These include activities such as provision of medical or safety services and professional work (including ancillary work of engineers, architects, surveyors).
It will normally be the contractor who decides whether a sub-contractor operates within the CIS, but you should consult HMRC to confirm this. The contractor needs to verify with HMRC that the sub-contractor is registered under the CIS before any payments can be made.
If you are unsure whether you are carrying out work which is covered by the scheme, you can contact HMRC directly on: 0300 200 3210.
CIS is a scheme that involves tax being deducted at source from payments relating to construction work. CIS requires the contractor to deduct tax at source on any payments it makes to a subcontractor. The rate at which tax will be deducted depends on the registration status of the subcontractor.
If you, as the subcontractor, then subcontract any of your obligations under the contract with the original contractor to another party you become a contractor. You will then be required to apply CIS rules to payments made to your subcontractor. This is how you can be both contractor and subcontractor.
Once the contractor has deducted tax, the subcontractor has satisfied relevant liabilities regarding amounts due to HMRC in respect of income tax. You must keep sufficient records in order to complete your tax return and to show the direct cost of materials.
From April 2016, It will be a requirement to file CIS returns online and you will not be able to submit paper returns, other than in certain circumstances. As well as submitting returns, you will also need to amend and resubmit your returns online. This applies to new returns and also where any corrections or amendments from previous returns need to be submitted.
At the end of the tax year the company should account for all CIS deductions made from its payments and offset against its own liabilities on the company's P35 Employer Annual Return. Where you believe that a repayment is due at the end of the tax year, you must make a request in writing for this repayment.
If you are not registered for CIS, the contractor will make a 30% tax deduction from your pay. Once registered HMRC will contact you to confirm the registration and provide you with all the information you require HMRC will also determine at this point whether you can be paid gross or with tax deducted at a 20% rate.
All contractors have to be registered with HMRC for the CIS. Subcontractors who do not wish to have tax deductions made from their payments at the higher rate should also register with HMRC.
To register as a contractor or subcontractor within the scheme you need to contact HMRC on 0300 200 3210, which is the CIS general enquiries helpline.
