Getting paid is important. Getting paid fairly, more so. The Construction Industry Scheme (CIS) sets about making sure both are carried out correctly.
In short, the CIS sets the agenda on how subcontractors should be paid by contractors for their construction related work as well as the amount of deductible tax.
What are the main features of the CIS?
• Under the scheme, subcontractors pay a flat-rate tax of 20% through their contractors.
• Every month the subcontractor should send an invoice to their contractor where 20% of it, if they’re registered properly, will go into their personal tax pot.
• CIS subcontractors, like all other self-employed workers, still have to send an annual self-assessment form declaring their earnings and expenses.
Does your work come within the CIS?
It can get confusing for contractors whose primary focus lies outside the construction industry. The best way to think about it is; if any of your projects are construction related you’ll more than likely need to register with the CIS.
Others who fall within the scheme include:
- Self-employed people working as sole traders.
- Labour agencies and staff bureaux.
- Gangmasters – or gang leaders.
- Property developers.
What are the main responsibilities of a contractor?
It is a legal requirement under the CIS that you send a monthly returns form to HMRC detailing payments made and the tax deducted to the subcontractor. You can fill it in online through the HMRC website. For subcontractors this is important as the HMRC use it to work out their end of year returns.
What are the main responsibilities of a subcontractor?
As well as sending an invoice to your contractor every month you need to be aware of the scenario in which you might be employing people as a subcontractor. For example, if you’re working for a contractor but have people working for you to carry out the job you’ll need to pay them through the pay-as-you-earn (PAYE) scheme. However, if your workers class themselves as self-employed then they will need to be paid through the CIS.
But what happens if I’m a contractor and a subcontractor at the same time?
It sounds complicated but it’s really not. You carry out both the responsibilities a contractor and a sub-contractor would i.e. sending off your monthly invoice for your subcontractor responsibilities and filling in your monthly returns like a contractor would.
Do I need to let anyone know if my situation changes?
You most certainly do. HMRC need to know any changes to your business as it might affect future tax calculations. For contractors, they should inform HMRC if:
- They have a new address.
- They choose to use your PAYE (Pay As You Earn) employees rather than subcontractors.
- Their business ceases trading – death of a contractor.
Subcontractors should inform HMRC if:
- There’s a change in the business ownership.
- The business stops trading.
- There’s a change of address.