Construction Industry Scheme (CIS) regulates the rules for the main contractors and subcontractors. If you are the main contractor in the CIS system, you are required to register with the Tax Office (HMRC). You must also follow certain rules as to how to pay subcontractors.
The main responsibilities of the contractor include:
Verification of subcontractors
Paying subcontractors in an appropriate manner - tax deduction
Paying the tax/NI liabilities to HMRC
Confirming these payments with the subcontractors
Sending monthly declarations to HMRC
Keeping records of the above activities
If you are a contractor operating under the Construction Industry Scheme (CIS), you must inform the HMRC tax office about payments to subcontractors. This information is transferred to HMRC on a monthly basis. It is provided by submitting CIS monthly returns. All payment information should additionally be recorded for the purposes of a potential inspection from HMRC.
The subcontractors' monthly declaration includes:
Data of subcontractors, UTR, verification number
Your company's data
Company's PAYE number
Amounts of the payments to subcontractors
Any deductions such as tax, materials
Each monthly declaration confirms that subcontractors are registered as self-employed and do not work for you on an employment basis. The declaration also includes confirmation that all subcontractors have been verified. If your subcontractor cannot be verified (no NIN, no UTR) you must deduct 30% tax instead of the standard 20%.
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