CIS Sub Contractors

What are your benefits as a subcontractor under CIS?

As a subcontractor under CIS, you can:

• Reduce your tax liability by claiming deductions for the cost of materials, VAT, and certain expenses

• Receive payments from contractors without any deductions if you register for gross payment status

• Avoid paying too much tax or National Insurance by submitting your Self Assessment tax return on time and claiming any reliefs or allowances

How to register as a subcontractor under CIS?

You can register as a subcontractor online using the CIS online service or by calling the CIS helpline. You will need:

• Your business name and address

• Your Unique Taxpayer Reference (UTR) number

• Your National Insurance number (if you are a sole trader or a partner)

• Your company registration number (if you are a limited company)

• The name and UTR of any partners or directors

How to receive payments and deductions from contractors?

When a contractor pays you, they may deduct tax from your payment and pay it to HMRC. The deduction only applies to the labour part of the payment, not to the cost of materials, VAT, or certain expenses.

You can calculate the amount of deduction by following this formula:

Deduction = (Payment - Cost of materials - VAT) x Rate of deduction

You have to receive a payment and deduction statement from the contractor within 14 days of the end of each tax month. The statement must show:

• The contractor’s name and business address

• Your name and UTR number

• The payment date

• The gross payment

• The cost of materials

• The deductions made

• The net payment

You have to keep records of all your payments and deductions for at least three years after the end of the tax year. 

How to file your tax return and pay your tax and National Insurance?

You have to file your Self Assessment tax return every year by 31 January following the end of the tax year.

Your tax return must include:

• Your personal details and UTR number

• The total amount of payments received from contractors under CIS

• The total amount of deductions made from your payments under CIS

• The total amount of income from other sources, such as self-employment, employment, property, dividends, interest, etc.

• The total amount of expenses and allowances that you can claim against your income, such as mileage, tools, equipment, home office, etc.

• The total amount of tax and National Insurance that you owe or are owed

You have to pay your tax and National Insurance every year by 31 January following the end of the tax year. 

How to apply for gross payment status?

If you want to receive payments from contractors without any deductions, you can apply for gross payment status. This means that you pay your own tax and National Insurance at the end of the year.

To qualify for gross payment status, you have to pass three tests:

• Business test - you have to show that your business is run in the UK, has a bank account, and does construction work or provides labour for construction work

• Turnover test - you have to show that your business turnover from construction work (excluding VAT and the cost of materials) is at least £30,000 a year (or £100,000 a year for partnerships and companies with more than one partner or director)

• Compliance test - you have to show that you have complied with your tax obligations, such as filing your returns and paying your tax on time

You can apply for gross payment status online using the CIS online service or by calling the CIS helpline. HMRC will review your application and let you know if you are approved or not. You have to renew your gross payment status every year by 5 April.

AUGUST 2023