If you are planning to start working as a subcontractor for construction projects in the United Kingdom, you should find out all you can about the CIS Payroll system.
The Construction Industry Scheme (CIS) is a set of rules that construction companies or companies involved in construction projects need to abide to if they are hiring subcontractors.
What does this mean for you as a subcontractor?
All companies hiring subcontractors for construction companies need to register with CIS which is part of the HM Revenue and Customs (HMRC). This will affect their construction payroll activities as it requires them to follow a different set of rules for their subcontractors then they will for their regular employees.
The company will need to provide HMRC with a list of the subcontractors and the payments that they make to these subcontractors monthly. Being registered for CIS requires them to make deductions from what they pay their subcontractors which they then pay to HMRC.
These deductions made from your pay will serve as advanced payment for your National Insurance and your taxes.
Do I as a subcontractor need to register to CIS?
You are not required to be registered to CIS to work as a subcontractor on UK construction projects, but it is actually to your advantage.
Whether you are registered on unregistered with CIS, your company will still include you in CIS payroll. That means that they will still be making deductions to your pay and sending these deductions to HMRC.
The difference comes in when you look at the deduction rates. Under CIS payroll rules, registered subcontractors get 20% deducted from their monthly payments. Unregistered subcontractors have a higher deduction rate at 30%.
How do I register for CIS?
You can register for CIS Online by going to the Gov.UK website and going to the Business Tax section. From there, look for the section called Construction Industry Scheme. You will find a guide there to CIS as well as instructions on how to register.
It’s a relatively simple process, you will put a business or trading name, your National Insurance Number, your UTP, and your VAT Registration number.
Once you are registered, any contractor that hires you can verify your registered status with HMRC. All they will have to do is check, using your legal business name and your UTR. They should then automatically make deductions from your pay at the standard 20% rate.
They should also provide you with monthly statements of payments and deductions. Take note that they are required to do so, if they don’t they will be penalized.