HM Revenue and Customs have issued a scheme in the United Kingdom known as CIS (construction industry scheme) for the majority of contractors and subcontractors in the country. Deemed contractors are a business that deals with subcontractors and spends a specific amount during the period of three years on construction work. A typical contractor usually deals with construction while deemed contractors are primarily involved in property. Construction is not the heart of their business but they do spend a lot of money in this field on an annual basis.
Under the construction industry scheme HMRC has underlined guidelines for contractors before they are ready to make payments to their subcontractors. As per HMRC registration of the contractor is mandatory under CIS. The registered contractors have the license to deduct the amount from their subcontractors’ payment and deposit the money to HMRC.
CIS supports all types of companies, every type of partnership, and every self-employed individual who is engaged in the construction industry. CIS scheme covers the permanent or temporary building, laying the foundation, installing the system for heating, site preparation, lighting, construction, power, alteration, water, dismantling, ventilation, repairs, decorating and demolition, and cleaning the inside of the building after the construction work. If you do the following certain jobs you need not to register: architecture and surveying, scaffolding, carpet fitting, plant, and machinery material or delivering materials.
There are different guidelines for contractors and subcontractors to register in CIS.
Step by step process to register as a subcontractor
- You need to have a legal business or trading name.
- Your national insurance number
- The unique taxpayer reference number of your business
- If you are VAT registered then your VAT registration number
- Company registration number
You can go online for registering through government gateway or you can call HMRC or you can contact the CIS helpline. For registering the company gives your or company’s unique taxpayer reference. You will be required to provide personal details like your national insurance number and your VAT number if it is available. HMRC confirms you in a short period of time.
In the CIS scheme when your contractor hires you, you share your UTR and NI number in case you are self-employed. If you are working as a company you will have to provide company numbers and company UTR. Your contractor then checks and verifies your CIS status online. If you are registered through CIS, your contractor will deduct 20% tax from you invoicing. It does not include VAT and materials. Your contractor will deduct 30% of tax, if you are not registered for the CIS scheme. When you complete your tax return, all amounts of deducted as CIS tax, income tax, corporation tax, or any of the tax deducted as NI payment is credited to you.
If you are a subcontractor you can also register in CIS through a different method. If your turnover is more than 30 thousand pounds you can register for the gross payment scheme. You can avail this service through telephone or online. In this case your contractor will pay you without deducting CIS tax. It will be of great benefit to your cash flow.
One should get register as an employer with HMRC when starting to employ staff or hiring subcontractors for construction work. It is necessary to get register before the first payday. The reference number is issued within five days. You must ensure to register two months before you start to pay off your employees. As a contractor if you have not got your PAYE reference number, you can still pay to your employees. You need to run the payroll, store the information of your full payment submission, and finally send the late full payment submission of HMRC.