What is the Construction Industry Scheme?
A tax deduction scheme for both contractors and subcontractors in the construction sector, the aim of CIS is to reduce levels of fraud and tax evasion in the industry by ensuring that subcontractors declare their tax and National Insurance (NI) to HMRC.
It works in the same way as the PAYE system for employees in that it requires contractors to withhold either 20% or 30% of the subcontractor’s payments to then pay on to HMRC on their behalf.
For more information on CIS, take a look at our Construction Industry Scheme page.
Registering for CIS as an umbrella company contractor
The majority of those working in the construction industry will need to register for CIS.
A contractor must register for the scheme. A subcontractor, however, can choose not to, but this will affect the deduction rate; so, those who are CIS registered will have 20% withheld from their pay and for those who are not, this increases to 30%.
Some subcontractors may even have a ‘gross payment’ status set at 0%, which means they’ll be paid in full but it’s then their responsibility to pay their own tax and NI at the end of the tax year.
It’s important to be aware that an umbrella company doesn’t have any involvement with the CIS process, meaning the umbrella contractor will need to register for the scheme themselves.
How does Contractor Umbrella verify a subcontractor?
All subcontractors in the construction sector will need to be verified – this is so the contractor can find out whether or not they are registered for CIS and therefore know which tax rate to apply.
At Contractor Umbrella, we will need to have your UTR (Unique Taxpayer Reference) number in order to verify you.
It’s worth noting that it won’t be possible for a subcontractor to be paid until they are verified with HMRC, so it’s really important for this to be sorted as soon as possible.
We hope you have found this page useful. Our team of experts are available to answer any queries you may have, so drop us a line on 01206 591 000 or email sophie.lewis@contractorumbrella.com.
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