Failing to register as a subcontractor

As a CIS subcontractor, you need to register both for self assessment and as a subcontractor under the CIS scheme (see the previous section for details on how to do this).

The immediate consequence of failing to register for CIS is a higher tax deduction of 30%, but the trouble doesn’t stop there.

If you fail to register for CIS, tax returns will still need to be completed. Failure to submit tax returns can lead to fines and estimated tax bills for which collection can be enforced by HMRC – known as determination notices. Such estimates normally ignore any tax withheld by the contractor and the tax bill is therefore usually far too large. If a tax return is not submitted within 4 years from the end of the tax year it may not be possible to change the estimated tax demand. The result could be lost refunds or even bankruptcy.

If you have not registered for self assessment or CIS, then you are breaking the law. It is likely that HMRC will discover from the contractor’s monthly returns that you exist and have received income. The result could be significant tax bills and penalties. Furthermore, if your business records are poor and you have nothing to prove that 30% tax was deducted from your income, then large tax bills are likely. If you can’t pay the bills, bankruptcy is a possible outcome.

If you have registered for self assessment and for CIS, and you are still having 30% tax deducted from your income, you should contact HMRC at once to sort out the mistake.