Multiple contractors
Construction businesses may sometimes find it administratively beneficial to divide up their businesses for CIS purposes. It might be because they operate through a branch or divisional structure and find it easier for each branch or division to have its own contractor scheme identity for CIS than to collate the information from the different sources into a single consolidated return and payment. The business can do this by electing to become a multiple contractor. Once the election has been made, a separate scheme will be created for each division and each scheme is treated as if it were a contractor in its own right.
For the purposes of this note, we will use the term 'division' when referring to the sub-set of the business which has been set up as a separate scheme. However, a business with a property portfolio handled through one or more managing Agents could, for example, set up the managing Agent(s) as a 'division' for CIS purposes.
How is an election made
The business must submit a written notice to the HMRC office which would normally deal with queries on their CIS36 or P35 returns. This must be done before the start of the tax year in which the election is to take effect.
The business must include the following information on the written notice:
- It must identify the groups of subcontractors to be dealt with under the separate contractor schemes, for example, 'all subcontractors paid by the Bristol office', 'all subcontractors paid by the London office', and so on.
- It must make a declaration that CIS payments are only made to the groups of subcontractors listed in the election and that none are made to subcontractors outside of these groups.
How will each entity be identified
Once the election has been accepted each of the divisions described by the business will be treated as a separate contractor scheme. The business will already have a single Unique Taxpayer Reference (UTR) (we call the entity a contractor at UTR level and a contractor scheme at the lower level). The same UTR reference will continue to apply to all the business’s divisions listed in the election.
Each division covered by the election will be given its own PAYE and/or contractor scheme with its own individual Employer PAYE Reference (also known as 'Employer PAYE Reference'). This will be issued to the division even if it only engages self-employed subcontractors and does not pay any employees under PAYE. This reference will be something like 123/A2345. This reference should go on all payment advice statements issued to subcontractors paid under deduction. This reference enables HMRC to link the deduction back to the contractor scheme for that division, if there is a query.
Each division will also be given a separate thirteen character Accounts Office Reference in the format 123PA00012345. This is the reference used to pay over to HMRC any PAYE/NICs or subcontractor deductions relating to that particular division’s PAYE and / or CIS scheme or when submitting returns of payments made by the division to subcontractors. The Accounts Office Reference is the reference we would prefer the scheme to use when communicating with HMRC and it must be used when making payment of deductions from subcontractors. This reference will be shown on every monthly return.
How HMRC treats each entity?
Once the election becomes effective, HMRC will treat each division as though it were a separate contractor, for example:
- If the division chooses to use its own address, then all HMRC communications will be directed to that designated communications address (not to the business’s main address), including notifications of any change in payment status for subcontractors listed in the division’s return. If the division chooses to have communications addressed to the business’s head office address, that would also be acceptable.
- Each division must submit a monthly return. The return will contain the division’s name, the business’s UTR and the division’s Accounts Office Reference. Any division submitting a late or incorrect return will be liable to the appropriate penalties. The business is ultimately responsible for the administration of all its divisions’ schemes and liable for the penalty. So, the business could incur a number of penalties in the same month, if all its divisions failed to submit their returns on time. However, in respect of reviewing the business’s compliance record, for gross payment status, each division will be allowed the disregards contained in Regulation 32.
- Each division must make its own payment of deductions to the HMRC Accounts Office using its own individual Accounts Office Reference number and payslip booklet.
- Each division would be able to verify subcontractors in its own right, or rely on verifications made by other divisions of the business. However we won’t automatically tie-up verifications from one linked scheme to another. Whilst a division need not verify a subcontractor already verified and paid by another division, HMRC will not know that another division is using that subcontractor and will therefore not pre-populate the division’s return with the details of that subcontractor. Once the division has paid that subcontractor, they will be individually notified of any change in that subcontractor's payment status.
Additional Information
- If the business wishes to revoke the election it can do so by notifying HMRC before the beginning of the tax year in which the election is to be discontinued. Otherwise the election will have continuing effect.
- Revoking an election does not prevent the business making another election either before the start of the next or a future tax year.
- Any new subcontractors engaged by the business must be allocated to at least one of the divisions.
- A business may acquire the whole or part of another contractor’s business during the course of the tax year. If the business continues to operate the acquired business’s own contractor scheme, nothing need be done (other than to notify HMRC of the change of control, if the acquired business is a limited company). However if the business is absorbing some, or all, of the acquired business’s subcontractors into its own business and there is a multiple contractor election in place, it must notify HMRC within 90 days of the acquisition on how it wishes the acquired subcontractors to be treated – as separate to the existing divisions, or allocated to the existing divisions. If the election is accepted, the separate schemes will come into effect from the start date of the business. Verifications made by the acquired business will not be valid for the existing divisions, unless the contractor applies for this to be the case as described at 6.14 of the CIS 340 – Construction Industry Scheme – guide for contractors and subcontractors (PDF 586K).
Example
Trusty Builders Limited is a contractor which operates right across the United Kingdom. Let's call it the 'business'.
For its own reasons, it decides to run its English operations out of its existing office and run its operations in each of the other countries as separate cost centres with an office in the relevant country. Let's call these the divisions of the 'business'.
(Please note: These rules do not apply where a business decides to set up separate companies to deal with its regional contracts for example Trusty Builders (Scotland) Ltd, Trusty Builders (Northern Ireland) Ltd etc. In these circumstances each company would be a separate legal entity and have its own UTR.)
The business makes an election, for CIS purposes, to be treated as separate contractor schemes in respect of the subcontractors it engages in Scotland, Wales and Northern Ireland and to continue to handle its subcontractors engaged in England at its main office.
For CIS purposes, it is now treated as four separate contractor schemes (or, four divisions within the overall business). Trusty Builders Limited has, and will only ever have, one UTR, but HMRC issues a new Employer PAYE Reference and Accounts Office Reference to each of Trusty Builders Limited, Scotland, Wales, and Northern Ireland division. If Trusty Builders Limited wanted each division to handle its own PAYE, that would not be a problem, but, for the purposes of this example, Trusty Builders Limited will continue to deal with the PAYE for all employees of Trusty Builders Ltd wherever they work in the UK.
The divisions in Scotland, Wales and Northern Ireland will use the Accounts Office References allocated to them only to account for CIS deductions. The original Trusty Builders Limited already has an Employer PAYE Reference and an Accounts Office Reference. The original Trusty Builders Limited will deal with all the subcontractors it engages in England as well as the PAYE for the whole business.
When Trusty Builders Limited (Scotland division) engages a new subcontractor, it verifies the subcontractor by supplying its name, Trusty Builders Limited (Scotland division), the UTR of Trusty Builders Limited and the Accounts Office Reference and/or Employer PAYE Reference for Trusty Builders Limited (Scotland division).
When HMRC issue the monthly return, it will be issued to the office of Trusty Builders Limited (Scotland division) and show that name, the UTR of Trusty Builders Limited and the Accounts Office Reference for Trusty Builders Limited (Scotland division).
At the same time, HMRC will also send monthly returns to the offices of Trusty Builders Limited, for the subcontractors in England and to Trusty Builders Limited, Scotland, Wales and Northern Ireland division to the addresses at which each of these divisions asked to be contacted.
Each of the four divisions will be responsible for returning its own return by the nineteenth of the month and will incur a penalty for not doing so.
Before multiple contractor election
Trusty Builders Limited
- Unique Taxpayer Reference - 12345 67890
- Accounts Office Reference - 123PA00012345
- Employer PAYE Reference - 123/A2345
Scotland division / Wales division / Northern Ireland division
All payments to subcontractors by the four branches are consolidated into one return made by Trusty Builders Limited using the references above.
After multiple contractor election
Trusty Builders Limited
- Unique Taxpayer Reference - 12345 67890
- Accounts Office Reference - 123PA00023456
- Employer PAYE Reference - 123/A2355
Trusty Builders Limited (Scotland division)
- Unique Taxpayers Reference - Uses the UTR issued for Trusty Builders Limited
- Accounts Office Reference - 123PA00023676
- Employer PAYE Reference - 123/AZ00001
Trusty Builders Limited (Wales division)
- Unique Taxpayers Reference - Uses the UTR issued for Trusty Builders Limited
- Accounts Office Reference - 123PA00025891
- Employer PAYE Reference - 123/AZ00002
Trusty Builders Limited (Northern Ireland division)
- Unique Taxpayers Reference - Uses the UTR issued for Trusty Builders Limited
- Accounts Office Reference - 123PA00025982
- Employer PAYE Reference - 123/AZ00003
Employer PAYE References are automatically generated and the examples above reflect this allocation.
The examples above all use the UTR issued to Trusty Builders Limited which is the only Limited Company here. The other three divisions are regional branches of that single Limited Company. They do however, have their own CIS schemes (in the 'After multiple contractor election' example) and thus have their own Employer PAYE References and Accounts Office References, even though no PAYE is handled by them.
