Tax Glossary


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Last updated on:
March 17, 2024

SubContractors are individuals or businesses engaged by main Contractors to execute specific portions of a larger project. This setup is commonplace in construction, where subContractors might specialize in areas like window installation in a building project.

The Self-Employed Nature of Subcontracting

Typically, subContractors operate on a self-employed basis, granting them the freedom to set their rates, choose their working hours, and select the projects they wish to undertake. When working under a Contractor, the subContractor's payment is processed by the Contractor, who also handles tax deductions before disbursing wages.

Diving into the Construction Industry Scheme (CIS)

The term CIS subcontractor applies to those involved in the Construction Industry Scheme, established by HMRC to ensure proper taxation within the construction sector. Before CIS, cash payments were common, complicating tax collection. Under CIS, contractors deduct tax from subcontractors’ payments at a rate of 20% for registered individuals, as opposed to the 30% for those not registered, and submit it to HMRC.

This system simplifies tax obligations for subcontractors, with many receiving a tax rebate at the end of the fiscal year if overpayments occur. For earnings exceeding £50,270 annually, higher tax rates apply.

Opting for Gross Payment Status

Subcontractors preferring to receive their full pay without upfront tax deductions can apply for gross payment status, placing the responsibility of making tax contributions on them, to be settled via Self Assessment by January 31 each year.

How to Join CIS

Registration for the CIS scheme is a straightforward process done through HMRC's platform.

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