More about Subcontractors

Some subcontractors are paid gross, but most sole-trader labour-only subcontractors will have tax deducted at 20%. The tax which is deducted must be entered on a self assessment tax return so that it can be set off against your income tax and class 4 National Insurance bill. Depending on the level of your profits, and how much work you do under the CIS scheme, you may be due a refund, or you could have more tax to pay.

Example:

Pablo is a subcontractor. In the year to 5 April 2012, he did £10,000 of work under the CIS scheme for Big Biz Ltd. and £5,000 of work for private householders. His business expenses were £3,000. He is registered with HMRC under CIS as a subcontractor and for self assessment. When Pablo completes his self assessment tax return for the year to 5 April 2012 he will show:

Sales                                                                                        £15,000

Business Expenses                                                                £3,000

Profit                                                                                       £12,000

Tax deducted under CIS (= £10,000 x 20%)                           £2,000

Pablo submits his tax return on-line. Self assessment on-line calculates the income tax and class 4 National Insurance he owes as £1,334.75. He has paid £2,000 tax under CIS. Therefore the on-line system will show he is due a refund of £665.25.

Unregistered subcontractors suffer tax deduction at 30%. Unregistered contractors still need to register with HMRC as self-employed and as CIS subcontractors. Failure to do this could lead to penalties, estimated tax bills and recovery action.

If you are a CIS Subcontractor there is guidance specifically for you in this separate section of the TaxAid website: being a subcontractor.