More information on construction industry taxes

Gross Payment Subcontractors

Many large contractors who pay subcontractors are themselves subcontractors to still larger firms. Many large contractors are registered with HMRC for gross payment – that is they receive their money without deduction of tax. Failure to operate CIS properly for their own subcontractors, or keep up to date with their tax affairs, can jeopardize their own gross payment status. (See http://www.hmrc.gov.uk/cis/subcontractors/gross-paid-review.htm). 

Employment Status

As well as registering under CIS before making payments to workers, contractors need to decide for each worker if they are an employee or self-employed. Employees will be taxed under PAYE, just like any other employee, and the contractor will need to register with HMRC as an employer to set up a PAYE scheme.

Contractor can use the HMRC on-line status indicator tool to give an indication of a worker’s employment status (http://www.hmrc.gov.uk/calcs/esi.htm).

If the contractor decides the worker is self-employed, then the worker will need to give the contractor their Unique Tax Reference number (UTR). The contractor will then check with HMRC to see if HMRC has a CIS record for that subcontractor. HMRC will tell the contractor what rate of tax deduction to use: no deduction (gross payment), 20% tax deduction, or 30% tax deduction (if HMRC has no CIS record for the subcontractor).

Contractor returns

Contractors need to complete monthly returns of CIS payments and pay any CIS tax deducted to HMRC.

Failure to register, or to make monthly returns on time will lead to penalties. There is a penalty of £100 per month per return for outstanding returns and a £3,000 penalty for failing to operate CIS properly. This includes failing to register at the correct time.

See http://www.hmrc.gov.uk/cis/returns/late-return-pen.htm