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What Contractors Must Do
What Contractors Must Do
If you are a contractor in the construction industry, you need to follow the Construction Industry Scheme (CIS) rules set by HM Revenue and Customs (HMRC). The CIS rules apply to you if:
You pay subcontractors to do construction work for you
Your business does not do construction work, but you have spent more than £3 million on construction in the past 12 months
The CIS rules do not apply to you if:
You are a private householder who hires subcontractors for your own home
You only do certain jobs that are not considered construction work, such as architecture, surveying, scaffolding hire, carpet fitting, making or delivering materials, or running a canteen on a construction site
So, with exceptions, if you provide construction work for the end client, you are a Contractor.
With the exceptions, anyone you hire to complete construction work in pursuit of fulfilling your construction contract with the end client, is a Sub Contractor.
What are your obligations as a contractor under CIS?
What are your obligations as a contractor under CIS?
As a contractor under CIS, you have to:
Register with HMRC as a contractor before you take on your first subcontractor
Check the employment status of your subcontractors and verify them with HMRC
Make deductions from your subcontractors’ payments and pay them to HMRC
Submit monthly CIS returns to HMRC and keep records of your payments and deductions
Give payment and deduction statements to your subcontractors
How to check and verify your subcontractors?
How to check and verify your subcontractors?
Before you pay a subcontractor, you need to check their employment status and verify them with HMRC. This is to make sure that they are registered with CIS and that you apply the correct rate of deduction.
It is important that you collect subcontractor information and verify them BEFORE making payments to them!
You can check the employment status of your subcontractors using the Check Employment Status for Tax (CEST) tool or by following the employment status manual. You may get a penalty if you treat someone as a subcontractor when they should be an employee.
You can verify your subcontractors online using the CIS online service or by calling the CIS helpline. You will need:
Your contractor UTR number
The subcontractor’s name, UTR number, and National Insurance number (or company registration number if they are a limited company)
HMRC will tell you the rate of deduction to use for each subcontractor. There are three possible rates:
0% - if the subcontractor has registered for gross payment status, which means they pay their own tax and National Insurance
20% - if the subcontractor has registered for standard payment status, which means they have passed some tests on their business turnover, tax compliance, and business structure
30% - if the subcontractor has not registered with CIS or has not provided correct details
How to make deductions and pay HMRC?
How to make deductions and pay HMRC?
When you pay a subcontractor, you have to deduct tax from their payment and pay it to HMRC. The deduction only applies to the labour part of the payment, not to the cost of materials, VAT, or certain expenses.
You can calculate the amount of deduction by following this formula:
Deduction = (Payment - Cost of materials - VAT) x Rate of deduction
You have to pay the deductions to HMRC every month by the 22nd (or the 19th if paying by post).
How to submit monthly returns and keep records?
How to submit monthly returns and keep records?
You have to submit a monthly return to HMRC by the 19th of each month following the month in which you made payments to subcontractors. You can submit your return online using the CIS online service or by sending a paper form CIS300.
Your monthly return must include:
Your contractor UTR number
The month covered by the return
The total amount of payments made to all subcontractors
The total amount of deductions made from all payments
The details of each subcontractor, including their name, UTR number, verification number, gross payment, cost of materials, deductions made, and net payment
You have to keep records of all your payments and deductions for at least three years after the end of the tax year.
How to give payment and deduction statements to your subcontractors?
How to give payment and deduction statements to your subcontractors?
You have to give a payment and deduction statement to each subcontractor within 14 days of the end of each tax month. The statement must show:
Your name and business address
The subcontractor’s name and UTR number
The payment date
The gross payment
The cost of materials
The deductions made
The net payment
AUGUST 2023
How We Help
How We Help
When we handle your CIS Scheme, we:
Complete subcontractor verification when you have determined the worker's employment status and collected the necessary information from them
Produce subcontractor payslips and statements from information provided on Materials, Labour and VAT
Submit Monthly CIS Returns to HMRC once approved by you
Provide payroll summaries to enable entry into the accounting system
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