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If you work as a subcontractor under the Construction Industry Scheme (CIS) you must register with HM Revenue & Customs (HMRC) before you start working.
If you don't register with HMRC, contractors have to make a deduction from your payments at the higher rate - 30 per cent.
You may be eligible as a business for 'gross payment' status, which means that deductions won't be made from your payments, but in order to qualify, your business must first be registered with HMRC and secondly must pass several qualifying tests.
This guide will explain how you register with HMRC, whether you're eligible for gross payment status and what else you must do as a subcontractor under CIS.
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If you're intending to work within construction you'll want to register with HMRC before you start doing so. If you don't register with them, deductions will be made from your payments at the higher rate (30 per cent).
If you have already registered for Self Assessment you can register for CIS by calling HMRC’s CIS Helpline.
You'll need to tell HMRC the name of the business you want to register - your own name if you trade under it as a self-employed individual - and the unique taxpayer reference number for the business. You can also give them one other trading name for the business.
To register as a subcontractor you must have a National Insurance number. If you do not have one please contact the Department for Work and Pensions on Tel 0845 6000643. They will help you arrange an ‘Evidence of Identity interview’ with a Jobcentre Plus Office. Without a valid National Insurance number HMRC will not be able to provide you with a Unique Tax Reference (UTR). HMRC also need your National Insurance number to effectively administer your National Insurance record.
Exceptionally, if you believe you don’t need a National Insurance number, perhaps because you don’t have to pay National Insurance, then you will be asked to prove your identity as part of the registration process. For more information on this you can call HMRC’s CIS Helpline.
When HMRC register you as a subcontractor they'll automatically set you up to receive payments 'under deduction'. This means contractors must make a deduction at 20 per cent from most of the value of your invoices and pay it over to HMRC. The deduction is held on account of your eventual tax and National Insurance contributions liability. But contractors won't make a deduction from amounts you charge on your invoice for:
If you don't want to have any deductions from your payments you'll need to prove you're eligible. If you can show HMRC your business passes some qualifying tests, they will grant you gross payment status.
If you don't register with HMRC as a subcontractor you'll have higher deductions made from your payments. Contractors will deduct 30 per cent from your invoices. HMRC will put these deductions against your tax bill for the year if you do later register with them and report your income on a tax return.
Before HMRC can grant you gross payment status so you can get paid with no deductions, you'll need to show them that your business passes three tests:
HMRC treat the CIS deductions from your invoices as up-front payments towards the tax and Class 4 National Insurance contributions (NICs) due from your business. To make sure you pay the right amount of tax for the year as a whole you'll need to submit the appropriate Self Assessment Tax Return for your business.
When you work out the tax payable by your business, you use the full amount of the invoice. Credit will be given against the tax due for any CIS deductions that contractors have deducted.
When your allowances and expenses are taken into account you may be due a tax repayment. If you owe any additional tax it'll be due by 31 January following the end of the tax year.
You should offset during the tax year all CIS deductions taken from payments made to the company against any PAYE (Pay As You Earn) and Class 1 NICs due or CIS deductions the company has made from its own subcontractors.
HMRC will repay any deductions that the company is not able to set off against its PAYE liabilities during the tax year when the company sends in its Employer Annual Return (form P35) at the end of the tax year.
HMRC treat the CIS deductions from your invoices as up-front payments towards the tax and Class 4 NICs.
If you have any questions about how to register as a subcontractor, you can call HMRC’s CIS Helpline.
There's guidance on the HMRC website about the different aspects of CIS, including the tests your business needs to pass to get gross payment status.