Whether you are a contractor or subcontractor, registering for the Construction Industry Scheme or CIS is important. For contractors, it is mandatory, for subcontractors it is not but not joining the scheme can mean you pay a higher tax rate.
Here we take a look at the process of registration, why it is necessary for the construction industry and how it benefits your business whether you are a limited company or a sole trader.
What is CIS registration?
The Construction Industry Scheme was first introduced in the 1970s and was designed to reduce tax evasion in the industry. It was updated in 2007.
The scheme ensures that contractors take out the tax when making payments to subcontractors and give this directly to the HMRC.
You can register as a contractor or subcontractor or both depending on how your business is organised. In fact, many companies will work as both contractor and subcontractor and understanding the responsibilities of each is important.
- Although CIS can appear similar to PAYE, subcontractors are not considered as employees of the contractor.
- If the individual subcontractor ends up paying too much tax over the year because of CIS, this can be adjusted when they do their final self assessment tax return.
- Many construction businesses will not take on subcontractors if they are not registered for CIS.
How do I register for CIS?
If you are a contractor, you will need to first register as an employer with HMRC. You can do that here.
Once you have completed this, you will then get a letter directly from HMRC detailing what you need to know about working as a CIS contractor. The information will include your Employer Reference Number and a 13 digit accounts office reference number. You’ll need these to log onto the online CIS service.
If you are a sole trader and you are going to register for CIS as a subcontractor, you can do this through your self-assessment account on the HMRC website, logging in with your UTR and password.
If you are a limited company and acting as a subcontractor in the construction industry, you will need to complete HMRC form CIS305. You can also use this form to apply for gross payment status.
Should I register for CIS and do I actually need to?
Anyone who acts as a contractor in the UK must register for CIS. Joining the scheme means that contractors commit to taking tax from a subcontractor when they pay them, giving this payment directly to HMRC.
Subcontractors have the option to register but are not mandated to do so. Failing to register, however, means they will have to pay a much higher initial rate of tax. 20% is charged for subcontractors that are registered for CIS. This rises to 30% for those that are not registered.
Do I need to pay tax on payment?
In most cases, yes.
If you have always paid your tax and NI on time and you run your business through a business bank account, however, you can apply for gross payment status which means the contractor will not take out the tax when paying you.
Do I need to verify a subcontractor?
As a contractor, you will need to confirm a subcontractor’s employment status and verify they are registered with CIS before any payment can be made. To do this, you can either use the CIS service provided by HMRC or a software package that is designed to do a similar job.
For your business you will need your Unique Taxpayer Reference (UTR), HMRC accounts office reference number and your HMRC employer reference.
To check a subcontractor, you will require their business or trading name which they provided when they registered for CIS, their UTR, a National Insurance number if they are a sole trade or their company registration number if they are a limited company.
You must do this for every subcontractor that you use, whether it’s for a one-off job or regular work. As a contractor, you will also need to put in monthly returns with amounts paid to subcontractors.
When HMRC verify a subcontractor, they will designate what tax they should pay. This will be 20% if they are registered or 30% if they are not. They will also state whether the subcontractor has gross payment status and does not need to be charged tax at all.
How do I check If I am CIS Registered?
If you are a sole trader you can check your CIS status by logging into your HMRC self-assessment account using your UTR and password. Alternatively, you can ask the contractor to check your status and confirm what tax you are likely to pay.
If you are a limited company and registered as a contractor and subcontractor, you can access the online CIS service.
Is UTR same as CIS?
UTR stands for Unique Tax Reference. It is a 10 digit number that is issued to a taxpayer when they register with HMRC. A company can have a UTR, as can an individual who is acting as a sole trader.
CIS is the scheme that construction workers join. Their UTR is used to ensure that payment from the contractor is processed properly and associated with their account.
Should I Give My UTR Number Out?
In normal circumstances, you should not give your UTR number to anyone, the same as with any of your confidential data.
However, when your contractor sets up your verification with CIS they will need your UTR. The only other people that you would probably give your UTR to is an accountant who is acting and managing your tax and accounts on your behalf.
What if I can’t access the online CIS Registration Form?
If you are having problems signing in to register for CIS or you don’t have access to the online facilities, you can contact HMRC directly on 0300 200 3210.
Summary
Registration for the Construction Industry Scheme is relatively simple. Under the scheme, contractors must take into account the tax status those supplying construction services. The online CIS service allows contractors to manage payments and verify subcontractors.
