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Construction Industry Scheme (CIS) subcontractor

You will need to register for the Construction Industry Scheme (CIS) if you work for a contractor and you’re one of the following:

·   Self-employed

·   The owner of a limited company

·   A partner in a partnership or trust

Under CIS, a contractor must deduct 20% from your payments and pass it to HM Revenue and Customs (HMRC).

These deductions count as advance payments towards your tax and National Insurance bill.

If you do not register for the scheme, contractors must deduct 30% from your payments instead. You do not need to register for CIS if you’re an employee.

Registering

To register for the Construction Industry Scheme (CIS) you’ll need:

·   Your legal business name - you can also give a trading name if it’s different to your business name

·   Your NI number 

·   The unique taxpayer reference number (UTR) for your business

·   Your vat registration number (if you’re vat registered)

If you’re a subcontractor and a contractor (you pay subcontractors to do construction work), you’ll need to register for CIS as both.

Register as a sole trader

If you’re a sole trader and you already have a UTR you can register for CIS online by logging in with your Government Gateway ID.

You can apply for gross payment status at the same time.

If you do not have a UTR you can register as a new business for SATR and choose ‘working as a subcontractor’ when prompted. You’ll be registered for Self Assessment and CIS at the same time.

Getting paid

To be paid correctly by a contractor, make sure you give them the same legal business name or trading name you gave when you registered for the Construction Industry Scheme (CIS).

If you do not, this could affect how much you get paid.

Deduction and deduction rates

When a contractor pays you under CIS, they’ll normally make deductions at the standard rate of 20%.

Contractors will make deductions at a higher rate of 30% if:

·   You are not registered for CIS 

·   They cannot verify you 

·   You give the wrong name for your business

Your contractor should give you monthly statements of payments and deductions. Use them to calculate whether you still owe tax and NI to HM Revenue and Customs (HMRC) or are due a refund.

Gross payment status

You can apply for gross payment status when you register for CIS. This means the contractor will not make deductions from your payments and you’ll pay all your tax and National Insurance at the end of the tax year.

Things that don’t count as your pay

Contractors will not make a deduction from amounts you charge on your invoice for:

·   VAT

·   Materials

·   Equipment which is now unusable (‘consumable stores’)

·   Plant hired for the job

·   Manufacturing or prefabricating materials

Pay tax and claim back deductions

When you’re registered with the Construction Industry Scheme (CIS), you’re still responsible for paying the correct tax and National Insurance for your business, even if contractors throughout the year have made deductions.

Contractors will give you a monthly statement of what they’ve paid you and deductions they’ve made to help with your accounting.

Sole traders and partners

At the end of the tax year, send in your SATR as usual. You should record:

·   The full amounts on your invoices as income

·   Any deductions contractors have made in the ‘CIS deductions’ field

HMRC will work out your tax and National Insurance bill and take off any deductions made by contractors.

If you still owe tax after this, you’ll need to pay it by 31 January following the end of the tax year.

If you’re due a tax refund, HMRC will pay the money back.

Limited companies

If you have gross payment status, declare all your income in your Corporation Tax return as usual.

If you pay CIS deductions, you must claim these back through your company’s monthly payroll scheme. Do not try to claim back through your Corporation Tax return. Doing so could incur a penalty. 

1. Send your monthly Full Payment Submission (FPS) as usual to HMRC.

2. Also send an Employer Payment Summary (EPS). Enter the total CIS deductions for the year to date.

3. HMRC will take your CIS deductions off what you owe in PAYE tax and National Insurance. Pay the balance by the usual date.

If your company’s PAYE bill for the period is reduced to zero and you still have some CIS deductions you have not been able to claim back, carry these forward to the next month or quarter (in the same tax year). Tell HMRC in the EPS that you have nothing to pay.

Any CIS statements that are missing can be requested from your contractor.

Gross payment status

Qualifying

You must show HM Revenue and Customs (HMRC) that your business passes some tests. You’ll need to show that:

·   You’ve paid your tax and National Insurance on time in the past

·   Your business does construction work (or provides labour for it) in the UK

·   Your business is run through a bank account

HMRC will look at your turnover for the last 12 months. Ignoring VAT and the cost of materials, your turnover must be at least:

·   £30,000 if you’re a sole trader

·   £30,000 for each partner in a partnership, or at least £100,000 for the whole partnership

·   £30,000 for each director of a company, or at least £100,000 for the whole company

If 5 people or fewer control your company, you must have an annual turnover of £30,000 for each of them.

Paying tax when you have gross payment status

You must declare your payments as income at the end of the tax year in:

·   Your SATR if you’re a sole trader or partner

·   Your Corporation Tax return if you own a limited company

Annual review

If you have gross payment status, HMRC will review your business every year, to decide if you can keep your status.

You must be on time with your tax returns and payments to keep your gross payment status.

If you run a limited company, HMRC will review the company itself, rather than individual directors or shareholders.

If you fail your review you’ll get a letter explaining you’re about to fail the review, along with the reasons why. If you appeal the decision and reply with good reason HMRC could accept your explanation and will not remove your gross payment status.

If you do not reply to the letter or HMRC does not accept your explanation, they’ll write to explain:

·   What conditions you have not met

·   That they’re withdrawing your gross payment status in 90 days

If you think HMRC have made the wrong decision, you have 30 days from the date of this letter to appeal.

Changes

You can report changes by calling the CIS (Construction industry scheme helpline) 

Tell them if you:

·   Change from a sole trader to a partnership

·   Leave a partnership or company to become a sole trader

·   Create a company or change your business to a company

You’ll usually need to register again for CIS - as you cannot transfer the registration from your old business structure. You will also have to apply again for gross payment status.

Also you must also tell HM Revenue and Customs (HMRC) if you:

·   Change your trading name

·   Change your business, private or registered office address

·   Stop trading

·   Add new shareholders - HMRC may withdraw your gross payment status if you do not tell them within 30 days