What is a CIS subcontractor

Explanation of a Construction Industry Scheme (CIS) Contractor

A subcontractor is a business that carries out construction work for a contractor. When operating as a subcontractor (i.e. someone providing services to a contractor), that individual usually has the choice of operating as:

• An employee
• A sole trader
• A limited company

Employee

Under the employee route, all of the individual’s income will be classed as earned income and the contractor will deduct all relevant taxes under standard PAYE rules due by the individual before any monies are paid to him.

Sole Trader/Limited Company

Under the sole trader or limited company option the individual must first be able to show that they are genuinely self-employed, and not an employee of the contractor.

There are then specific rules that govern the amount of tax to be deducted by the contractor from the individual/company before monies are paid to them.

How Much

To determine how much is to be deducted from the individual, the contractor must contact HM Revenue & Customs (HMRC) who will then verify the individual’s status. To do this the contractor will need the subcontractors Unique Tax Reference (UTR), National Insurance Number and full name then HMRC will confirm the subcontractor’s payment status as being either:

• Gross - no tax deducted
• Net - the contractor must deduct 20% from the gross amount
• Higher rate - 30% must be deducted from the gross amount

Verify

The verification number issued by the Revenue must be noted by the contractor and included in all reports to HMRC as proof that the subcontractor has been verified and deductions made based on their tax status.

There are then additional requirements for the contractor to complete specific declarations to HMRC (monthly returns) and issue the subcontractor with a monthly pay statement (in a specific format as detailed in the legislation guidance). If the contractor does not adhere to these rules there are heavy penalties attached.

Subcontractors, What Next?

Jim Goddard, Divisional Manager of Oriel Contractors, goes through the two options a subcontractor can take:

• “Subcontractors wishing to be paid within the Construction Industry scheme will have to check that the work they are undertaking is that of self employment.  The HMRC have an employment status test that can be used for this purpose or Oriel has developed its own guidance on employment status.
  
• "If the subcontractors work will be self employment then he/she will be eligible for the CIS scheme.  Firstly they must register with HMRC as self employed and then once they have their UTR number they can phone the CIS Helpline on 0845 366 7899 to be registered for the scheme.
  
• "The process of registering is quite straight forward but companies like Oriel Contractors can help guide new subcontractors through the process and make sure that by registering correctly they are not charged higher rate deductions.”

Call or Online

When a subcontractor obtains a contract to do work, which is covered by CIS, then the subcontractor needs to register with HMRC as soon as possible if they are not currently registered. This can be done by calling the HMRC or registering online.

The information that will be required will vary depending on whether the contractor is a sole trader, partnership or company.

And There's More

Jim Goddard continues:

• “The problem for a lot of subcontractors is that dealing with HMRC can be daunting if you are not familiar with the process.  Oriel Contractors can give subcontractors friendly advice on the quickest and simplest way to register so they can just get on with their job with no worries at the back of their mind.
• “Once the initial registration is completed we’re happy to do all the regular paperwork for the subcontractor and we make sure they have all the backup to their payments to ensure they are complying with the CIS rules. All the subcontractor needs is a personal bank account that we can put their net pay into. Our friendly and expert team are on hand to help any subcontractor and we’re just a phone call away.”

Confused

If, like most new subcontractors, you really don’t want to get confused with dealing with the HMRC then you’re likely to be better off talking to a company that can advise you of the simplest way to register. It’s probably worth giving them a call if nothing else.