Subcontractors and the Construction Industry Scheme (CIS)

Those who are required to register should:

• phone the CIS Helpline on 0300 200 3210, or
• visit www.hmrc.gov.uk/new-cis if they are not registering for gross payment.

If you have not been paying tax or national insurance contributions before, you will have to go to a local HMRC office for an identity check.

Registration for gross payment is possible where the subcontractor’s business meets certain conditions, including a construction labour turnover of at least £30,000 each year. You must be on time with your tax return and payments to keep your gross payment status.

When you first work for new contractors, they must be satisfied that the contract between you is one of self-employment. This can be quite a contentious area. The HMRC website contains an employment status indicator (ESI) tool which can be used for individuals or groups of workers. This will, however, provide only an indication of employment status. It will not give a definitive or legally-binding opinion.

You need to give the contractor your name, unique taxpayer reference (UTR) and national insurance number (NINO), if known. The contractor will then contact HMRC for verification of your payment status and will be informed whether or not you are registered for CIS, and if you are whether they must pay you gross or ‘under deduction’.

The deduction, which is on account of your eventual tax and Class 4 national insurance bill, will be taken at the standard rate of 20% on the labour element of the work you have carried out. Any subcontractor who is not registered under CIS will have tax deducted at the higher rate of 30%.

If you are being paid under deduction, your contractor must give you a written or faxed payment statement (which may also be given electronically where you have agreed to this method) showing how much you have been paid and the deductions that have been made from your payments. Your contractor will give you a payment statement for each tax month or may choose to give you one with each payment where these are more frequent.

You must call the CIS helpline 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
• change your trading name
• change your business, private or registered office address
• stop trading
• add new shareholders.

When you have prepared your Self Assessment Tax Return, you may receive a repayment if the deductions are more than you owe, or be asked to pay more if the deductions are not enough to meet your bill. If your accounting period ends early in the tax year, you may know your tax and Class 4 national insurance contributions bill before the end of the tax year. If this is less than deductions already taken from your payments, you may apply for an ‘in-year repayment’.

The Government has announced it would implement improvements to the operation of the CIS, particularly to enable more subcontractors to receive payments without deduction on account of tax by:

• reducing the threshold for the turnover test from £200,000 to £100,000 where there are multiple partners or directors from April 2016
• simplifying the compliance test to focus on fewer compliance obligations from April 2016, enabling more subcontractors to receive payments without deductions
• introduce mandatory online filing from April 2016
• mandate online verification, where the contractor checks the subcontractor’s tax status with HMRC from April 2017, following implementation of improvements to the service in 2016/17.