Posted on 19th September 2018

If you work as a CIS subcontractor, or you hire subcontractors, it’s very important to make sure that your tax affairs are being handled correctly.

Companies that pay subcontractors for construction work must be registered with the Construction Industry Scheme (CIS). This scheme requires the contractors to deduct tax from the subcontractor’s payments and forward the money to HMRC. Subcontractors do not have to be CIS-registered, but deductions are taken from their payments at a higher rate if they’re not registered.

As a subcontractor, you may be a sole trader or you may have set up a limited company, also known as a personal service company (PSC).

Last year, the Government made reforms to the off-payroll working through an intermediary rules (IR35) for the public sector. Limited company contractors pay tax differently to permanent employees. The IR35 legislation was introduced in 2004 to crack down on tax avoidance by workers who would be classed as an employee if they weren’t working through an intermediary, such as a PSC.

The April 2017 reforms meant that responsibility for determining whether the off-payroll intermediary rules applied shifted from the worker’s PSC to the public sector body, agency or third party paying them. This also meant that body, agency or third party was now liable to deduct tax and Class 1 NI payments for the worker and notify HMRC. The Government is now considering extending the reforms to the private sector next year.

The off-payroll rules have had a significant effect on the rail construction industry in particular. This summer, construction contractor James Horabin terminated his contract on the Government’s HS2 rail project, claiming that genuine contractors were being “forced into umbrella companies and subject to tax hikes of 30%, with no justification provided.”

If you work in construction or hire subcontractors, we can give you expert advice to ensure that you remain tax-compliant.