If you are self-employed, you will normally pay all your tax through your tax return. However, if you are in the construction industry, there are special rules if you do work on behalf of a contractor. A contractor is anyone within the building industry that hires other people, such as carpenters or electricians, to do work for them. The people they hire are referred to as subcontractors, and the payments made to subcontractors fall within the Construction Industry Scheme (CIS) rules. 

Because of historic problems with some subcontractors not declaring their income for tax, these rules were brought in to collect that tax up front. Before making payments to subcontractors, a contractor must deduct tax in a similar way to tax being deducted from employee wages. The deduction is made after excluding materials and certain other costs, so it will usually be based on the value of the subcontractor’s labour. The deduction is 20% if the subcontractor has registered under the CIS scheme, and 30% if they are not registered. If you are a subcontractor that has not previously registered, you can do so by calling the CIS helpline on 0300 200 3210. You will need your National Insurance Number or Unique Tax Reference so that the helpline staff can find your HMRC record. Any tax deducted is reclaimed through a subcontractor’s personal tax return.

If you are a subcontractor that is going to do a lot of work for contractors, it is possible to register for gross status. Gross status would allow you to be paid without any deduction. To qualify, you need to have an annual turnover of at least £30,000, operate your business through a bank account and have paid your tax and National Insurance on time. Applications can be made using the CIS helpline above, or online through a personal tax account.

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