The Construction Industry Scheme: adding contractor status to your PAYE operation

A CIS contractor has to deduct tax from what it pays its subcontractors. Photo: JSB Co. for Unsplash+

WHAT IS A CONSTRUCTION INDUSTRY SCHEME (CIS) CONTRACTOR?

  • The CSI is the way HMRC ensures that labourers on construction sites pay their fair due of tax
  • If you are paying non-employees for labour on a construction operation, this normally makes you a contractor, and the scheme requires you to register as a CIS contractor and then report these payments under the CIS scheme

HOW TO REGISTER AS A CONTRACTOR COMPANY

  • First the company must register as a PAYE employer.  The company may already be registered in this way if it already operates a payroll
  • If the company is already registered as an employer, then you need to contact the HMRC CIS helpline by calling HMRC on 0300 200 3210 (You need to have ready your PAYE reference number and your business Unique Taxpayer Reference [UTR])
  • When on the phone, you tell HMRC that you already have a PAYE scheme, and you now need to register as a contractor under the CIS
  • HMRC will then update your registration, and you will use your existing Government Gateway account to manage CIS online

PAYING SUBCONTRACTORS AS A CONTRACTOR

  • A contractor must  check with HMRC whether each subcontractor working for them is registered with CIS
  • If a subcontractor is not registered, the contractor must keep back 30% of what they pay the subcontractor in labour costs before VAT, and pass it to HMRC
  • If a subcontractor is registered, the contractor must keep back 20% of what they pay the subcontractor in labour costs before VAT, and pass it to HMRC
  • If a subcontractor is registered with ‘gross payment’ status, then the contractor may pay the subcontractor without deduction

PAYING HMRC AS A CONTRACTOR

  • The amounts a contractor has deducted from subcontractor payments should be paid direct to HMRC every month along with other payroll taxes

RECORDS TO KEEP AS A CONTRACTOR

  • Each subcontractor’s business name, address, and Unique Taxpayer Reference (UTR)
  • The date subcontractor’s status was verified with HMRC, and the unique verification number received
  • Copies of all subcontractor invoices
  • Date and gross amount (excluding VAT) of each payment invoiced by the subcontractor, split into non-labour and labour, and showing any deductions made at 30%, 20% or 0%
  • Copies of all CIS returns
  • Copies of monthly payment and deduction statements provided to subcontractors

YOUR SUBCONTRACTOR DUTIES CONTINUE AS USUAL

  • Being a contractor does not change anything regarding how you are paid by any contractors you do work for
  • Your contractor will continue to deduct any tax necessary when they make payment for the sales invoices you send them
  • You will continue to report this to HMRC each month, and it will continue to reduce the PAYE payments you make to HMRC

SUMMARY

  • If your company is already an employer, then you register as a CIS contractor by phoning HMRC
  • You must collect each subcontractor’s business name, address and UTR
  • You must then check whether each subcontractor is registered for CIS, and deduct from their pay 30%, 20% or 0% as appropriate
  • Every month you must then complete a CIS return and pay these deductions to HMRC along with your payroll payments
  • Every month you must also provide each subcontractor with a payment and deduction statement

Eddie Chauncy

Eddie Chauncy

Therapist, accountant, writer, musician and poet.