Contractors have to firstly verify their subcontractors who work for them with HM Revenue and Customs. This enables them to check the payment status of the subcontractor and ensure that they pay the correct amount.

When, as a subcontractor, you have entered a contract to undertake work covered by CIS you will need to register with the scheme as soon as possible and then provide all of the registration details to your contractor.

When this is done your payment status can be verified by the contractor with HMRC.
If you do not register then you could end up getting tax deducted at a higher rate.

Gross or Under Deduction?

If you successfully comply with all the requirements to be registered as being able to receive gross payments then your contractor will pay you gross without any deductions.

This will then require you to pay tax and National Insurance Contributions (NIC) on this amount through your tax return.

Gross payments will be covered under a separate article.

Payments under deduction

If you do not qualify for gross payments then your contractor will deduct an amount (currently 20%) before they pay you. They then pay this amount over to HMRC on your behalf.

If you have not registered for deduction or the contractor could not verify you then they will deduct tax at a higher rate, currently 30%. You can then claim for these deductions through your tax return.

VAT, cost of materials and some other expenses like plant hire do not come under the scheme and so are not classified as pay and are not subject to deductions. These therefore need to be excluded when working out how much needs to be paid.

Travel and subsistence expenses are classified as pay and so will be liable for deductions.

At the end of your or your company’s financial year you are required to complete a tax return.

HMRC, your accountant or you can calculate your tax and NIC liability and should then set aside any deductions which you have suffered in respect of CIS tax from it.

If you need any more information or would like to discuss how this all effects you, please contact us at Accountancy Services Direct.

Getting Paid and Paying Tax – part 2

Technorati Tags: Accountancy Firms, Accountancy Services, CIS, Tax Accountant, Tax Services