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Subcontractors who are working for a contractor under the Construction Industry Scheme should ensure they are registered with HM Revenue & Customs, as this may affect the amount of tax deducted from gross payments made to them. A contractor is responsible for informing HMRC each month of gross payments made to subcontractors and deductions which are made.

A subcontractor has to be verified by HMRC using the Unique Taxpayer Reference number, National Insurance HMRC Advicenumber and name of the business or individual, including any partners if the business is a partnership. Subcontractors receive payment from a contractor, either gross or under deduction. If a subcontractor is paid gross, this is without any deductions being made, and tax and National Insurance should be accounted for on the Self Assessment tax return.

If a subcontractor is paid under deduction, tax will be deducted at the current rate of 20 percent before payment is made to the subcontractor. The deductions are paid to HMRC by the contractor. There are strict criteria under CIS, to decide who may be paid gross which contractors must comply with. If a subcontractor isn’t registered for CIS or cannot be verified by the contractor, tax will be deducted at the higher rate of 30 percent.

At the end of each year, subcontractors must complete and return a Self Assessment tax return. Any deductions which have been made will be set against the tax and National Insurance that you owe. If you have already paid more than is owed, you will receive a repayment of tax from HMRC.

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