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What you need to do as a Construction Industry Scheme (CIS) Subcontractor - Part 1

Getting paid – the really important part

To get paid the right amount by a contractor, make sure you give them the same legal name or trading name you gave when you registered for the Construction Industry Scheme (CIS). You should also give them your Unique Taxpayer Reference (UTR) so they can verify you, and your National Insurance Number if you are a sole trader 

If you don’t, this could affect how much you get paid. And your contractors are busy people – the chances are they’re too busy to chase you for the correct information, so try and get it right first time. 

To help with this, we’ve included a handy CIS Invoice template you can use – just save a copy and then fill it in with your details. Add the line details etc and it will calculate the rest for you.

How much tax will I pay?

When a contractor pays you under CIS, they’ll normally make deductions at the standard rate of 20%. 

However - contractors will make deductions at a higher rate of 30% if: 

If you have to pay the 30% rate you will not be able to claim this back, although it can be offset as part of your annual tax return. 

Your contractor should give you monthly statements of payments and deductions. Keep these safe - you’ll need them when you come to do your tax return, which we’ll get to in a minute or two.

Gross payment status

You can apply for  gross payment status  when you  register for  CIS. This means the contractor won’t make any deductions from your payments and you’ll pay all your tax and National Insurance at the end of the tax year. There’s more on this so we’ve put it on a separate Blog. 

Do I have to pay CIS tax on everything?

No, don’t worry. Contractors will not make a deduction from amounts you charge on your invoice for: 

  • VAT 
  • materials 
  • equipment which is now unusable (‘consumable stores’) 
  • plant/equipment hired for the job 
  • manufacturing or prefabricating materials

Pay tax and claim back deductions

When you’re registered with the Construction Industry Scheme (CIS), you’re still responsible for paying the correct tax and National Insurance (NI) for your business, even if deductions have been made by contractors throughout the year. 

Contractors will give you a monthly statement of what they’ve paid you and deductions they’ve made to help with your accounting. And we don’t mean to nag – but keep these safe, its your only proof !!! 

Sole traders and partners

At the end of the tax year, send in your Self Assessment tax return as usual. You should record: 

  • the full amounts on your invoices as income 
  • any deductions contractors have made in the ‘CIS deductions’ field 

HM Revenue and Customs (HMRC) will work out your tax and National Insurance bill and take off any deductions made by contractors. If you still owe tax after this, you’ll need to pay it by 31 January following the end of the tax year. If you’re due a tax refund, HMRC will pay the money back. 

Limited companies

If you have gross payment status, declare all your income in your Corporation Tax return as usual. If you pay CIS deductions, you must claim these back through your company’s monthly payroll scheme. Do not try to claim back through your Corporation Tax return - you may get a penalty if you do. 

HMRC will take your CIS deductions off what you owe in PAYE tax and National Insurance and you’ll have to pay the balance by the usual date.
If your company’s PAYE bill for the period is reduced to zero and you still have some CIS deductions you have not been able to claim back, carry these forward to the next month or quarter (in the same tax year). Tell HMRC in the EPS that you have nothing to pay. 

Keep your records

Your company must keep a record of amounts claimed back against your monthly or quarterly PAYE bill. You can use form CIS132 to do this or keep your own records. 

If you paid too much in CIS deductions HMRC will pay back any deductions your company has not been able to claim back from its PAYE bill during the tax year. 

If your company goes into administration

If your company goes into  administration  or  liquidation, the person managing it should write to  HMRC  to ask for  CIS  deductions to be repaid straight away. 

If you do not have all your  CIS  statements

If you have not received all the CIS statements you need from your contractor, you can ask them to send you replacement copies. If the contractor you’re working for stops trading and you have not been able to get all your CIS statements you should write to HMRC.  

Include the following information: 

  • your name, address and Unique Taxpayer Reference (UTR) 
  • the name and address of the contractor 
  • the contractor’s tax reference - if you know it 
  • the dates of the payments or the tax months when the contractor paid you 
  • the reason why you do not have the statements or duplicates 

Changes you need to report

Report changes by calling the Construction Industry Scheme (CIS) helpline

Tell them if you: 

  • change from a sole trader to a partnership 
  • leave a partnership or company to become a sole trader 
  • create a company or change your business to a company 

You’ll usually need to register again for CIS - as you cannot transfer the registration from your old business structure. If you have gross payment status, you’ll also need to apply again. 

You must also tell HM Revenue and Customs (HMRC) if you: 

  • change your trading name 
  • change your business, private or registered office address 
  • stop trading 
  • add new shareholders - HMRC may withdraw your gross payment status if you do not tell them within 30 days 

If your business goes into administration, it can keep receiving payments for work it’s done under CIS. It should be paid in the same way that it was paid normally - either gross or under deduction. 

Need to contact HMRC?

NIC and EO
HM Revenue and Customs 
BX9 1BX 

Part 2 of this Blog goes into more detail on applying for Gross status.

Download the Invoice template below. 

We also have this information available to download in 9 different languages here.



 

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