Contractor and Subcontractor Roles in the Construction Industry Scheme (CIS):
Contractor: If you're involved in construction projects and hire subcontractors for any part of the work, you're classified as a CIS contractor. Your responsibilities include deducting tax from each payment made to subcontractors and remitting it to HMRC on their behalf monthly. The tax deduction rate depends on the subcontractor's status. Additionally, you must furnish each subcontractor with statements detailing the deductions made and consider the cost of materials in payments.
Subcontractor: As a CIS subcontractor working on construction projects for contractors, certain deductions apply depending on the type of work. While registration for CIS isn't mandatory, opting for it can reduce tax deductions from 30% to 20%. Moreover, meeting specific criteria allows subcontractors to apply for "gross payment status," eliminating CIS deductions altogether. These criteria include passing the Business Test, Turnover Test, and Compliance Test. Deductions made count as advance payments toward Income Tax and National Insurance contributions, potentially resulting in tax refunds during self-assessment tax return filing. It's also possible to be classified as both a contractor and subcontractor under CIS.
