For understanding the role that every part plays in the Construction Industry Schemes, see first the outline of this process. So, how does it work?. Explained very briefly, a CIS contractor is someone who makes payments for construction operations. On the other hand, the subcontractor in the CIS means a party that receives payments for construction operations.
If we were to discuss the above idea in more detail, it would sound like this: under the CIS, entrepreneurs deduct money from the payments of a worker (who is not their employee) and pass it on to the HMRC. These deductions count as advance payments to the tax of the subcontracted worker and to national insurance. Contractors must be registered for the Construction Industry Scheme.
Obligations of a CIS contractor
If you find yourself in one of the situations below, then you will need to register as a CIS contractor:
- The most important situation is if you make payments to subcontracted workers for construction work.
- Although your company is not engaged in construction work, you still spend over £ 1 million a year on construction.
Several jobs that are included in the construction scheme are site preparation work, making certain modifications, dismantling, or demolishing certain units. As a contractor, you have to continue to apply regardless of whether you are a sole trader, a business partner, or a limited liability company.
In addition to registering with HMRC, you also have other responsibilities as a CIS contractor. Remember, CIS contractors are often construction companies, building firms, government departments, or local authorities.
What are the responsibilities of a CIS contractor?
1. A contractor must register with the HMRC for CIS before taking over any subcontractors.
2. There are situations that require certain workers to be employed with “employee status” instead of being your subcontractors. In these cases, there are real chances that you may face a penalty if you should have accepted them as an employee.
3. It is your responsibility to check the subcontractors with HMRC. This is the number one rule for CIS contractors.
4. You will pay the workers and deduct any payments from the subcontractors. These deductions you make will be considered advance payments for a subcontractor’s tax and national insurance bill. This money must be paid to the HMRC.
5. To avoid any financial penalty, you must submit monthly returns and keep all Construction Industry Scheme records.
6. Notify HM Revenue and Customs of any changes in your company (e.g. address or business structure).
What happens if a contractor does not deduct CIS?
As a final note, it should be noted by the subcontractors that although the deductions were made by the contractors throughout the year (under the CIS), the subcontractors are still responsible for paying the correct tax and national insurance for their business.
If the HMRC finds that a contractor has failed to make the necessary deductions for the CIS, it will most often issue a calculation to the contractor showing the CIS due and requesting their agreement on the figures.
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