What is the Construction Industry Scheme?
The Construction Industry Scheme, or CIS, is a tax deduction scheme – it’s often mistaken for being an additional tax, but it’s more like an upfront tax system with the purpose of preventing fraud and tax evasion within the sector.
Similar to the PAYE system for employees, 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
Both contractors and subcontractors are affected by the scheme, with each having different responsibilities.
A contractor must register for the scheme, whereas a subcontractor doesn’t have to, but in not doing so, deductions are still taken from their payments at the higher rate.
As an umbrella contractor, you will need to register for CIS yourself, as the umbrella doesn’t have anything to do with this part of the process.
What are the umbrella’s CIS responsibilities?
An umbrella company will have a few different responsibilities when they have contractors working in the construction industry; these include:
Verifying subcontractors
It won’t be possible for a subcontractor to be paid until they are verified, so it’s imperative that this is sorted as soon as possible.
The contractor, or umbrella in this case, will need to verify the subcontractor through HMRC so they can determine whether or not they are registered for CIS.
This is so they know how much tax to deduct from the contractor’s pay.
You’ll need to provide your UTR (Unique Taxpayer Reference) number for them to do this.
Deducting CIS tax from an umbrella contractor’s payment
As mentioned previously, the amount of tax deducted will depend on whether or not you are registered for CIS.
For example, subcontractors who are CIS registered will have 20% deducted from their pay and for those who are not, this figure increases to 30%.
There are certain subcontractors who may even have a ‘gross payment’ status set at 0%, which means the contractor will pay them in full and then it is their responsibility to pay their own tax and NI at the end of the tax year.
Keeping full CIS records
The umbrella will need to keep records of the gross amount of each payment invoiced by subcontractors, excluding VAT and any deductions made from subcontractor payments.
If you’d like to sign up or need any further information, please call one our friendly experts on 01206 591 000 or email Jaime at jaime.thorpe@contractorumbrella.com.
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