In the UK, certain entities must register as a contractor under the Construction Industry Scheme. Under this scheme, contractors are required to deduct taxes from money paid to subcontractors and submit it to HM revenue and customs (HMRC). These amounts are considered prepayments towards the subcontractors tax and national insurance costs.
Should You Register?
If you are a building contractor who regularly utilises subcontractors, you are subject to registering for CIS. However, there are certain instances where individuals or businesses must register even though they never build anything. For example, some are classified as “deemed contractors,” which means:
- You spend more than £1 million per on construction in any 3 consecutive years
- Construction work can consist of: decorating, foundation work, repairs, heating and cooling installation, demolition and more.
Tax codes and rules are complex, but here are just a few you must follow if you fall into the construction arena:
- Register for CIS before hiring a subcontractor
- Make sure your subs are registered with CIS
- Determine if you should hire someone as a sub or an employee- there are rules on this.
- File monthly
- Keep detailed records
- Submit money deducted from subcontractor pay to HMRC
In some cases, you may be exempt from registering with CIS even if you are a contractor. These include but are not limited to:
- Working on subcontractors property if it is worth less than £1,000
- Paid for by charity or trust
- Work for local school on behalf of education authority
- Carpet fitting
Registering, record keeping and understanding who must do all of the above can be quite taxing, pun intended. Whether you are a small contracting business or a self employed subcontractor, it can be confusing, which could mean financial penalties. Rather than go it alone and hope you are getting it done correctly, you may be better served working with a bookkeeper or accountant. No one needs to be on the wrong end of a tax liability, and with all the paperwork, record keeping and submissions that are required on a monthly basis, it just makes good financial sense to hire a professional.