Probably more than any other industry, construction has a much higher proportion of self-employed people. Within the construction industry, these individuals can either choose to work directly for customers such as homeowners or become a subcontractor.
From builders and plumbers to roofers and bricklayers, setting up as a subcontractor can have big benefits such as more reliable work. It does, however, mean that you will have tax deducted when a contractor pays you.
Here we take a closer look at the steps you need to take to become a self-employed contractor, the benefits of doing so and how to become CIS registered in just a few minutes.
What is the CIS Scheme?
If you are a contractor in the construction business in the UK, you will need to register for the Construction Industry Scheme, more commonly known as CIS.
A contractor is essentially anyone (individual, business or partnership) that hires other construction workers.
An example would be if you were a company charged with a building a housing development. You might subcontract some of that work to plumbers, roofers or bricklayers rather than employ these artisans directly.
The CIS scheme was introduced to prevent tax evasion in the construction industry. Contractors must deduct tax for payment for work carried out by subcontractors and pay this directly to HMRC. The deductions count as advance payments towards the subcontractor’s tax and National Insurance.
Do I need to register for CIS as a subcontractor?
While contractors in the construction industry need to register with CIS, subcontractors are not obliged to. The caveat here is that, if you are not registered, the amount you will be taxed by a contractor will be much higher.
The tax rates that contractors apply are:
- 20% for subcontractors who are registered for CIS.
- 30% for subcontractors who are not registered for CIS.
In certain circumstances, subcontractors will not need to pay tax because they have gross payment status.
How do I become a self-employed Subcontractor?
It’s easy to set yourself up as a self-employed subcontractor. All you need to do is register yourself online with HMRC.
The form takes just a few minutes to complete and, as a subcontractor, you will have your tax deducted automatically when you next get paid by a contractor.
You can also register as a subcontractor if you are the owner of a limited company or a partner in a partnership or trust.
How do I register as self-employed and get a UTR Number?
The first step in setting up as a self-employed subcontractor is to register yourself as self-employed with HMRC. This requires you to give details such as your name and address and National Insurance number. It takes just a few minutes to complete and you can do it here.
Once you register as self-employed, you will receive a Unique Tax Reference that is required to log in to the HMRC self-assessment online form. You will need to complete this each year to submit your tax return. The UTR is sent by post and it normally takes about 10 days.
How do I register for CIS?
Once you have your UTR number, you can then also register for CIS. You can do this here.
- The first step of the online form is to choose between net and gross payments. For all newly self-employed subcontractors, you will tick the net box.
- Next, you need to put in your name and address, date of birth and National Insurance number.
- HMRC will then ask about when you started construction work in the UK and what type of work you do as well as some of your trading details.
- Once this has been input, HMRC will give you a summary to check. If all the information is right, you accept the declaration and then are registered as a CIS subcontractor.
If you cannot register for CIS online, you can call HMRC by telephone on 0300 200 3210.
What is Gross Payment Status?
If you are a subcontractor with gross payment status, the contractor does not take the tax out of your payment. You pay your tax as usual when you complete your annual Self-Assessment Tax Return.
To qualify for gross payment status you need to be working in construction in the UK, have paid your NI and tax on time in the past and run your business using a business bank account and not a personal bank account.
You must also have a turnover above £30,000, excluding the cost of materials and VAT.
Gross payment status is reviewed each year. It can be removed by HMRC, for example, if you pay your tax return late.
Are CIS subcontractors classed as Self-Employed?
The simple answer is yes. Although contractors deduct tax from payments, subcontractors are still considered as self-employed. Some builders, bricklayers and plasterers work solely as subcontractors, others have a mix of work that they undertake.
For example, you may be a roofer working on private property for the homeowner, in which case you won’t be considered as a subcontractor. At the same time, your business may be providing services to a larger company handling a property development where you are classed as a subcontractor.
Some individuals and plenty of limited companies act as both contractors and subcontractors. This does not affect any self-employed status.
Who doesn’t need to register as a subcontractor?
While CIS applies to the vast majority of construction activities, some are excluded. If you are a surveyor or architect, for example, you don’t have to register with CIS even though your activities may be associated with construction.
Other types of business that don’t need to register include:
- Carpet fitting.
- Scaffolding hire that isn’t supplied with labour.
- Businesses that manufacture for construction.
- Businesses that deliver materials.
Also excluded from the need to register as a subcontractor is any onsite activity that is not directly related to construction. This includes things like running site facilities and catering.
It is relatively simple to register as a self-employed contractor if you are work in the construction industry. You are not obliged to register for CIS, the Construction Industry Scheme, but you will pay less initial tax if you do so.