CIS for contractors and subcontractors sets rules for paying construction subcontractors and recording deductions. A construction business can be a contractor, a subcontractor or both, depending on the job. If you work on building projects in Hertfordshire or elsewhere in the UK, it is useful to know which role you have on each job.
CIS for contractors and subcontractors: what work is covered?
CIS applies to many types of construction work, including building, alterations, repairs and decorating. It can also cover some work that owners do not immediately think of as construction. Other work is excluded. The answer depends on the activity and the contract, not just the label on an invoice.
A contractor is a business that pays subcontractors for construction work. A subcontractor carries out construction work for a contractor. A small building firm may be a subcontractor on one project and a contractor when it pays another trade on the same project.
If you pay subcontractors
Contractors must register for CIS, check the status of subcontractors where required and apply the deduction rate HMRC gives them. Deductions are generally calculated on the relevant labour element, not simply on the entire invoice including qualifying materials. Contractors also have monthly reporting and payment duties. Keep contracts, invoices, verification results and payment records together so that each deduction can be explained.
If a contractor pays you
Subcontractors are not required to register, but unregistered subcontractors normally face a higher deduction rate. Registration can therefore make a significant difference to the cash arriving in your bank account. Keep the payment and deduction statements you receive, reconcile them to invoices and bank receipts, and make sure the deductions are reflected correctly when your tax is calculated.
Remember that a CIS deduction is an advance payment towards tax; it does not necessarily settle your final tax liability. Your overall position depends on your profit and other circumstances.
CIS for contractors and subcontractors: records to keep
Ask who is paying whom, what work is being done and whether the parties are registered. Agree how labour and materials will appear on the invoice. Then make sure the bookkeeping records gross income, deductions and cash received in a way you can reconcile.
HMRC’s CIS guide for contractors and subcontractors contains the detailed rules. AA&R Certified Accountants supports construction businesses with bookkeeping, tax and reporting. Contact us to review how CIS applies to your work.
Related reading: Hemel Hempstead Cash Flow Guide for Tradespeople.