If you work within the construction industry you will either be a subcontractor, a contractor, or possibly both. Either way you will have to familiarise yourself with the rules specific to the construction industry regarding income tax deductions at source.
Subcontractors
If you are a subcontractor you will need to be registered as both self employed and as a subcontractor within the Construction Industry Scheme (CIS) HMRC so that when you undertake a new contract your contractor will be able to contact HMRC and start making deductions at the specified rate of either 20% or 30%, unless you hold gross status.
Every time you receive a payment from your contractor it will be after they have deducted income tax at source at the specified rate on the labour content of your invoice. At the end of each month you will receive from the contractor a statement detailing the total gross pay and income tax suffered at source.
At the end of the tax year when you are completing your Income Tax Return the amounts suffered at source can be deducted from the total liability, this can often result in a repayment of tax.
At Colin Richardson Accountants we can help subcontractors in the following way:
- Register you as a subcontractor with HMRC.
- Prepare your Income Tax Return at the end of the financial year.
- Obtain any repayment of tax (our fees can be deducted from the repayment to preserve your cash flow).
Contractors
If you are considering taking on labour you are required to register with HMRC as a contractor. Before you pay a subcontractor you will be required to contact HMRC to verify the subcontractor and confirm how much income tax you must deduct from the payment, either 20% or 30% should the subcontractor not hold a gross payment status.
At the end of every month you are required to report to HMRC how many subcontractors you have paid and how much you have deducted at source and as a result have to pay the deductions to HMRC.
You are also required to provide subcontractors with a monthly statement detailing the payments you have made to them and how much income tax has been deducted so that they can offset the deductions from their year end income tax liability.
We can help contractors by:
- Registering you as a contractor with HMRC.
- Verifying subcontractors and advising how much tax to deduct.
- Completing the monthly Contractor Returns and advising how much to pay.
- Providing CIS vouchers to distribute to subcontractors.