For those who work within the construction industry, there are a number of processes that will need to be followed to remain in line with the regulations and expectations of the HMRC. Depending on whether you are a construction company that uses outside help in the form of contractors and subcontractors, or a self-employed worker who is responsible for their own taxes, there are some things you will need to be aware of.
Contractor’s duties
If you are a contractor working in the building trade and you hire or manage subcontractors then your will need to register as a CIS Contractor, or Construction Industry Scheme Contractor with the HMRC for business tax purposes.
This applies whether you operate as a limited company, sole trader, or a partnership. If you use subcontractors and pay them for their services you will need to register.
There are some parameters that will need to be checked before using subcontractors.
Firstly, you will need to register before you take on anyone to provide paid help, and secondly, the HMRC has strict rules around who qualifies as a subcontractor.
These rules will need to be checked carefully to determine whether your paid worker should be classified as a subcontractor, or taken on as a company employee.
Any subcontractors used will also need to be registered with the CIS scheme and records will need to be kept to verify their deductions for tax and NI. These are taken by the contracting company and paid to the HMRC as an advance contribution to their end of year tax and NI obligation.
The hiring company will need to keep clear records and file monthly CIS returns.
Subcontractor’s duties
As with a construction company or hiring contractor, subcontractors will also need to register for the CIS scheme whether they are a sole trader, partnership, or limited company.
Contractors will take deductions from money paid, report details, and pay sums to the HMRC on the subcontractor’s behalf.
Failure to register for the CIS scheme will result in a higher percentage of payments being deducted.
For subcontractors who do not wish deductions to be taken, ‘gross payment status’ may be applied for when registering for the CIS.
CIS registration is not needed for any subcontractors who are hired as an employee.
Verification of subcontractors
Before making any payments to a subcontractor, a contractor has the responsibility of verifying the subcontractor’s status with the HMRC. This is to ensure that the subcontractor is correctly registered with CIS, and it will also tell the contractor if deductions need to be made and how much they should withhold.
To verify subcontractors and determine their status, contractors will need to access the Construction Industry Scheme online service and provide some information about the subcontractor including:
- UTR (Unique Taxpayer Reference)
- National Insurance Number (for sole traders)
- Company name, UTR, and registration number (for limited companies)
- Trading name and partnership UTR, and nominated partner details (for partnerships)
The details provided will need to match the information provided by the subcontractor when they self-registered for the Construction Industry Scheme.
As a contractor, records of deductions must be kept and returns filed monthly with the HMRC. Failure to miss filing dates or not meeting the deadlines can result in fines and penalties for late payments.
Penalties range from £100 to £300 plus 5% of deductions, depending on how late the return is submitted. For returns that are submitted more than 12 months late, an additional penalty of up to £3000 and a fine up to 100% of the CIS deductions my be leveraged.
