If you are a contractor or subcontractor working within the construction industry, you will need to register with HMRC’s Construction Industry Scheme.
If you are both a contractor and subcontractor then you will need to register as both under the Scheme.
The basis of the Scheme is to ensure that tax (CIS tax) is deducted and paid to HMRC. A subcontractor is therefore seen to be making advance payments towards their national insurance and tax liabilities. As a result, it ensures subcontractors working for themselves register for self assessment and declare their income.
The rate of CIS tax deducted is 20%. However, to ensure subcontractors register for the Scheme, before any payment can be made, the subcontractor has to be verified. If the subcontractor is not registered and therefore can’t be verified, a deduction of 30% tax must be made. This means that the subcontractor must a) register as soon as possible to avoid 30% tax deductions from future monies and b) claim back overpaid CIS tax when he/she files a self assessment tax return.
If you are registered under CIS and working as a subcontractor for a contractor, it is important, for your own records, to obtain monthly CIS statements AND an end of year CIS statement. This will be used to complete your self assessment tax return and prove the deductions made match. If you do not hold complete records or are unable to obtain copies then the information held by HMRC and that reported within your self assessment tax return, may not agree and this may delay any repayment.
If you are unsure whether or not you should register OR if you are registered and need assistance to complete your self assessment tax return to maximise your repayment, get in touch now!