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Construction work usually involves subcontractors undertaking tasks for contractors. The money paid to the former has to be handled in a specific way for the latter to remain compliant with HMRC regulations.

Which are you?

If you are involved in work in the construction industry in the UK, you may have to operate under the CIS rules when making or receivingConstruction Industry Scheme payments for jobs completed. You may be a contractor if you are a business and you hire subcontractors to work for you in the construction industry. A business may be a company, a sole trader, or a partnership, and any of these could be a CIS contractor. If construction operations cost your firm £1 million a year on average, then you are deemed to be a contractor. If you hire subcontractors to carry out work on your home, you are not. However, if you work in various properties and hire subcontractors to do work, you are a contractor for CIS purposes.

Similarly, a subcontractor can be a business of any kind, including a sole trader, partnership, company, or organisation. If you are engaged to work by a contractor, then you are deemed to be a subcontractor, even though you may engage your own subcontractors to carry out the tasks. It has to made clear whether a worker is being hired as an employee or a subcontractor, as this will affect the way that payment is provided.

Paying under CIS

A contractor has to pay a subcontractor in a specific way, according to the rules of the Construction Industry Scheme. They have to verify that a subcontractor is registered as such with HMRC, in addition to clarifying that the contract is one of self employment and not for employment. HMRC will tell you how payment should be made to the subcontractor, depending on their status. They may be paid the gross amount without any deductions being made. HMRC may tell you to make deductions at the standard rate of 20 per cent, or to use the higher rate of 30 per cent. The higher rate would be used for deductions if the subcontractor couldn’t be verified by HMRC, or isn’t registered.

Gross or under deduction?

To qualify for gross payments to be made, a subcontractor must fulfil specific qualifying criteria. This includes having a turnover in the construction industry of at least £30,000, being compliant with HMRC, and carrying out work in the construction industry in the UK.

The regulations for CIS are complex and many businesses consult a professional for advice. Get details on our CIS services 

About The Author

Karl Bilby

We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!

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