Contractors Obligations Under the Construction Industry Scheme (CIS)
Contractors in the construction industry*, particularly when first starting out, are often unaware or apprehensive of their duties to HMRC with respect to “employing” subcontractors. The additional admin work involved can seem daunting at first, but we’re here to help by explaining the basics…
So you’ve decided that it’s time to take on a subby to help with the workload. Whether or not you are working for a contractor yourself, or a private residential customer, you will need to apply the CIS mechanism and deduct tax from your subcontractor and pay this on to HMRC each month. The following is a brief outline of what this entails. Rest assured that your accountant can assist you with much of this:
Register as a Contractor
The first step in taking on a subby is ensuring that you are registered as a Contractor with HMRC. To do this, you must register as an employer so that a PAYE scheme is set-up in the businesses name and you can submit monthly CIS returns as well as make any necessary payments on behalf of your subcontractor(s). You can find further information on how to do this here, but we recommend using your accountant so that they can ensure it is done correctly.
Verify Your Subcontractor
In order for a subcontractor to be paid correctly, they must be registered both as self-employed and as a subcontractor with HMRC. This will give them a Unique Tax Reference Number (UTR) and they will be issued with a deduction rate, typically 20%. They can find more information on how to do this here. Once this is complete, you can verify them using your software. Most modern accounting software packages, such as Xero, have an optional module for CIS built in. Again, accountants are used to working with these regularly and can verify your subbies on your behalf.
Deducting CIS Tax
Once you have verified your subby and confirmed their deduction rate with HMRC, you are able to make payments to them. They should invoice you for any work performed, although in many cases you may need to raise the invoice for them based on the number of hours / days they’ve worked. When you have determined the total amount due to them for any given payments or invoice, you must deduct the correct tax and pay them the net amount after tax.
Submission of Monthly Returns
For PAYE and CIS purposes, the monthly period runs from the 6th of the month to the 5th of the following month. For instance, the first month in 2023/24 tax year runs from 06/04/2023 - 05/05/2023. Your will need to ensure that any subcontractor payments have been communicated to your accountant in plenty of time prior to the deadline of the 19th of the following month for these submissions, i.e. all payments made between 06/04/2023 - 05/05/2023 must be reported on a return and submitted by 19/05/2023.
Payment of CIS Tax
As a contractor, you must pay across all CIS tax deducted from your subcontractors to HMRC by 22nd of the following month, i.e. CIS deducted on payments between 06/04/2023 - 05/05/2023 must be paid by 22/05/2023. This is done in the same way as PAYE deduction payments and you can find details on how to make this payment here.
If you are also acting as a subcontractor you may be able to reduce the amount to pay HMRC, or even wipe it out completely, if you are using a good accountant who will offset the CIS you have suffered on invoices to customers with the CIS due from paying your own subcontractors. Please note this is only relevant if you are not paid gross, i.e. you have CIS deducted at 20% or 30%.
Providing Monthly Subcontractor Statements
You are also responsible for providing payment statements to all subcontractors paid each month. As with the monthly returns, these statements must be sent by the 19th of the following month, i.e. all payments and deductions made between 06/04/2023 - 05/05/2023 must be sent to each relevant subby by 19/05/2023. Using good accounting software, such as Xero, this can be done automatically by your accountant so long as you have provided the subby’s email address. If they do not have an email address, they will need to be sent their statements by post or hand delivered.
Using an Accountant
Good accountants can effectively perform all of the above steps for you, except:
You will need to collect your subby’s UTR, National Insurance number, address and email address so that your accountant can verify them with HMRC and send their statements.
You will need to tell your accountant the gross pay they are entitled to and the date of payment, typically by way of invoices from your subby.
You will need to pay HMRC the CIS deducted for the month.
* If you’re unsure whether the work you perform falls into the Construction Industry Scheme, then you should check out HMRC’s guidance here.
Please note the above material does not constitute advice in any way. The blog has been provided for informational purposes only and should not be relied on for tax, legal or accounting advice. You should consult with your own accountant before engaging in any transaction, or alternatively contact us directly.
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