The Construction Industry Scheme was set up to provide rules for contractors and subcontractors who are working in the construction sector.
Contractors are obligated to register with HMRC and follow the regulations so that their verified subcontractors are paid in the correct manner, which may include making deductions from their pay. The deductions must be paid to HMRC and a statement given to the subcontractor. Accurate and timely records must be kept by a contractor and monthly returns submitted.
Verify and pay subcontractors
If you hire someone to carry out work through the Construction Industry Scheme, you have to confirm that they are actually self-employed and are not working as an employee. If you have hired a person under a ‘contract of employment’, you won’t be able to treat them as a subcontractor. Confirm employment status prior to engaging the worker.
A subcontractor must be registered with HMRC before they can be paid by you. This is so that you can verify them, and be told whether to pay them gross or make deductions. There are four ways to verify a subcontractor – using the Electronic Data Interchange, the CIS online service that is provided by HMRC, the HMRC helpline for CIS, and with commercial CIS software. In all cases, you will need specific details about the subcontractor before they can be verified.
Payment and deductions
HMRC will tell you how the individual subcontractor should be paid. This will either be gross or entail deductions of 20 per cent – which is the standard rate – or at the higher rate of 30 per cent. The latter of the two is used when HMRC is unable to verify the subcontractor. Before making a deduction from the subcontractor’s payment, you must make take off certain expenses from the gross amount of pay. You then deduct any VAT that has been charged by them. You must also deduct the cost of any Construction Industry Training Board levy if the subcontractor has paid it. Further expenses that should be taken from the gross amount include fuel, materials, plant hire, consumable stores and manufacturing materials. You will then have to make the deduction of either 20 or 30 per cent, according to HMRC’s instructions.
All deductions made have to be submitted to HMRC. As the Construction Industry Scheme is relatively complex, it is advisable to consult an expert for more information.
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