Under the CIS, contractors must deduct 20% from your payments which counts towards your end of year tax and National Insurance bill. If you don’t register, the contractor you are working for must deduct 30%. If the amount you have had stopped under the CIS over the year means you have paid too much tax, you may be entitled to a rebate, which you can apply for through your self-assessment tax return.
While the burden of CIS is mainly on the person or company making the payments, if you are working as a subcontractor you also have certain obligations under the scheme. If you do not register, deductions will be taken from your payments at a higher rate.
Here are some best practice tips to ensure you are operating correctly and won’t get on the wrong side of HMRC.
Registering for the Construction Industry Scheme
If you already have a Unique Tax Reference (UTR) number, you can register online here using your Government Gateway ID.
If you don’t have a UTR, you need to register as a new business for Self Assessment. By selecting “working as a subcontractor” means that you will be registered for the CIS.
You will also need to have your National Insurance number to hand, as well as your VAT registration number if you are VAT registered.
As well as registering online you can also do it by calling HMRC’s CIS helpline on 0300 200 3210.
Employees (including umbrella company workers) do not have to register for the CIS, as they are taxed under Pay As You Earn (PAYE)
When you get paid under the CIS, you will normally have standard deductions of 20% stopped.
A word of warning here - make sure you give whoever is paying you your correct legal business or trading name. If you get it even slightly wrong, they won’t be able to confirm that you are registered for the CIS or verify your status under the scheme. This means you will be deducted 30% when you get paid.
CIS deduction will not be made from the following amounts:
- Equipment which is now unusable
- Plant hire
Paying tax and claiming it back
Even though you are having CIS deductions stopped throughout the year, you are still responsible for paying the correct amounts of tax and NI so you will need to complete a Self Assessment tax return at the end of the tax year.
On this you will need to record your full income, deductions made under the CIS and any expenses you have incurred. HMRC will then calculate if you have any more tax and NI to pay or if you are due a rebate.
If you owe tax you have until 31st January following the end of the tax year to pay it.
If you are due a rebate, HMRC will process and pay this after you have submitted your self assessment. You can do this as soon as the tax year has finished.
Things will be a lot easier at the end of the tax year if you keep good records on all your income and outgoings, including the following:
- CIS remittances showing income and tax paid
- P60s or P45 if you have been employed
- Receipts for expenses you have incurred
- Records of any property or investment income
- Details of benefits claimed, such as Job Seekers Allowance
Report any changes to HMRC
Don’t forget to let HMRC know if you change the way you operate (for example you change from a sole trader to a limited company), change your address or stop trading.
About Liquid Friday
As an Umbrella company and CIS contracting provider, Liquid Friday has been serving the contractor recruitment sector since 2006, with a reputation for personal, straight-talking service and being a voice for the flexible employment industry.
Based in Portsmouth, the business currently supports 4000+ contractors across more than 400 recruitment agencies and intermediaries.
Written by Lynne Gowers from Liquid Friday
If you are looking for work or recruiting then speak to Busy Bee Recruitment's Construction, Trades & Labour Recruitment Consultant, Louise Smalley | 01353 880253 | Louise@busybeerecruitment.co.uk