An introduction to the Construction Industry Scheme (CIS) Part 1: A guide for subcontractors
While umbrella companies are well known for processing wages through the pay as you earn (PAYE) scheme, did you know that we also process payments for subcontractors working under the construction industry scheme (CIS)? In this article we’ll outline the nature of a subcontractor, how your role is defined and how this fits into the CIS, and introduce you to how we process pay for subcontractors.
What is the construction industry scheme?
The construction industry scheme sets out the rules for payments from contractors to self-employed subcontractors in the construction industry.
What is a subcontractor?
A subcontractor is a sole-trader, or owner of a limited company, who carries out construction work for a contractor. The type of construction work covered under the CIS covers the majority of work involving buildings; roles such as site preparation, repairs and decorating are all covered under the scheme while professional work such as that of an architect or surveyor does not qualify. If you are unsure whether your role falls inside the scheme you can find out more by following the link below or by contacting your agency.
https://www.gov.uk/what-you-must-do-as-a-cis-subcontractor
Once you have established that your role requires you to register for the CIS, you will need to register as a subcontractor. To do this you will need your unique tax reference (UTR) number and your national insurance number. In many cases you can register online but there is also a CIS helpline should you need it: 0300 200 3210
What else do I need to know?
Not everyone who works on a construction site qualifies as a sole-trader; your agency or end client will decide whether you fall outside of IR35, and can be paid as a sole trader, or inside IR35 and should be employed through the umbrella scheme instead. Supervision, Direction and Control (SDC) are used to determine employment status, for more information, see our handy guide on SDC: (link)
What are the benefits to being paid through the CIS?
As a self-employed subcontractor you will be used to completing your own self-assessment and submitting to HMRC; using the CIS takes some of that administrative burden away from you. Those who have applied for the scheme and are verified will have a 20% tax deduction taken from their wages at the point that we process payroll, this is considered an advance payment of income tax contributions. We send this off to HMRC so you don’t have to worry about this when your self-assessment rolls around; at this point, HMRC calculates any outstanding tax and national insurance due, taking into account deductions made throughout the year. Please note that while we do still charge a margin on running your payroll, this is deducted prior to your tax being calculated.
Registration to the scheme is not mandatory however there are tax benefits for those who enroll. Should you not be CIS verified your tax deduction would be at the higher rate of 30% rather than 20%.
What about those with gross status?
In some cases, if you qualify, you may have gross status; in this case no tax deductions will be taken from your payment, only our margin. To qualify for gross status, you must show that your business passes some of HMRC’s tests; they will look at your turnover in the last 12 months and decide whether you are eligible. You are then responsible for declaring your own tax at the end of the tax year in your self-assessment or company corporation tax return.
So what now?
If you find yourself working in the construction industry as a sole-trader, why not apply to become CIS registered; save yourself some of the administrative burden and allow us to process your tax deductions for you.
Give us a call today to register with Optimum CIS on 0203 962 4212
