The Construction Industry Scheme has a very simple goal – to prevent self-employed subcontractors from avoiding tax. The so-called ‘Self-Employment Switch’ has helped construction firms take on full-time employees as self-employed subcontractors. The contractor avoids paying the tax and employee benefits and the subcontractor who likewise doesn’t need to tell the exchequer about their earnings. The CIS scheme was designed to thwart this behaviour within the UK’s growing construction industry.
The Construction Industry Scheme allows contractors to deduct money from a subcontractor’s payment to directly pass it to HM Revenue & Customs. The Government is clear about the purposes behind this scheme:
“The deductions count as advance payments towards the subcontractor’s tax and National Insurance. Contractors must register for the scheme. If you are not registered, as a Subcontractor, you’ll see a high-rate deduction from your pay.
What is a contractor?
A contractor is a person who undertakes a contractually agreed role to perform a service/deliver a product on behalf of a client. The contractor model has strong antecedents within the UK’s historic construction industry. The new CIS guidelines will place a range of arrangements that contractors must be both aware of and able to undertake.
The new CIS register means contractors need to deduct income tax directly from the subcontractor’s gross earnings. The purpose of which is to promote good self-employment habits with the HMRC and to avoid tax losses based on bogus self-employment. Registration is mandatory for contractors.
What is a subcontractor?
A subcontractor is a person that undertakes specific work on behalf of a contractor on a larger construction project. A construction subcontractor can either be trading as a one-person limited company contractor or alternatively a self-employed sole trader. CIS will impact either trading approach in relation to the subcontractors’ earnings.
The new CIS framework will mean subcontractors do not have to register. However, there is no harm in registering either. Each deduction will count as an “advance payment” towards any and all subcontractor’s due tax and NI contributions. Therefore, the amount deducted doesn’t necessarily mean your entire tax liability is removed.
How to get CIS Subcontractor accounts support
Prestige Business Management can help small subcontractors navigate the tax and accountancy hurdles that are involved with CIS scheme. We can make sure your annual accounts are correct and that you understand the implications of the CIS on your tax affairs. So, why not get in touch today and book a free consultation with our tax advisors? Simply call 0203 773 2937 or email info@prestigebm.co.uk for more information.
