Failure to register as a contractor when paying people who help you on a job

The definition of construction is very wide including decorating, repairs, and demolition for example. All business to business payments for work done are covered by CIS: only payments made by private householders are not under CIS.

So for example, if you complete some work for a private householder, the money paid to you by the householder is not subject to tax deduction. But if you ask a self-employed colleague to help, then any payments you make to the colleague are subject to CIS. Notice that if the householder pays both workers directly then CIS would not apply.

Example:

Rob is asked to undertake some repair work on Ben’s private house. He asks Wendy to help him with the electrical work. Wendy is working on a self-employed basis for this contract. Ben pays Rob without deduction of tax as Ben is a private householder. Rob then pays Wendy.

Rob should register under CIS as a contractor before making the payment. Rob should ask Wendy for her UTR and check her CIS status with HMRC. He should then pay Wendy gross, net of 20% tax or net of 30% tax depending on her status with HMRC.

If HMRC advises Rob that Wendy is registered under CIS but not for gross payment, then Rob will keep back 20% tax and pay this across to HMRC on Wendy’s behalf.

If Rob in the example above failed to register as a contractor under the CIS scheme he could face very big penalties. These include a £3,000 fine for not keeping CIS records, a £100 per month penalty per missed return (and returns are due monthly).

Failing to register for a number of years could lead to penalties in the tens of thousands of pounds. This can happen even when all the workers are registered as self-employed and have paid the tax due on their income.