If you are a Construction Industry Scheme contractor, you will need to register with HM Revenue & Customs. As a contractor you have to abide by strict criteria to ensure you pay your subcontractors correctly. Initially you will have to verify your subcontractors with HMRC. You will also be responsible for making any necessary deductions fro subcontractor pay and paying deductions to HMRC. Monthly returns have to be submitted to HMRC with details of all subcontractor payments.
CIS is for self employed subcontractors and is not for employees, so you must check that you haven’t hired a person under a contract of employment. If a person is an employee they will be liable to pay tax through the Pay As You Earn system rather than CIS tax, which is tax deducted from a subcontractor’s gross pay. Following verification of a subcontractor, HMRC will tell you how to pay the subcontractor. This may be to pay a gross amount without any deductions, or to make a deduction at the standard rate of 20 percent, or make a deduction of 30 percent. This higher rate will usually apply if HMRC couldn’t verify the subcontractor by matching details you give them.
Any deductions you make have to be paid to HMRC. You also have a responsibility to submit a CIS monthly return, which provides details of all payments made to subcontractors and deductions made. It is essential that subcontractors register with HMRC as self employed so that verification will be successful. If HMRC doesn’t have a record of the subcontractor, CIS tax will be deducted at 30 percent.
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