In this section:
- Getting paid and paying tax - advice for subcontractors
- Paying subcontractors - advice for contractors
- How to pay CIS deductions to HMRC if you're a contractor
- Using CIS Online
- Correcting monthly return and payment errors
Paying subcontractors - advice for contractors
If your business operates as a contractor under the Construction Industry Scheme (CIS) then there are certain steps you must take when you pay subcontractors for construction work covered by CIS. These include verifying new subcontractors, working out the right amount to pay them, and keeping proper records and paperwork.
This guide will help you follow the correct procedures when you pay your subcontractors. It includes an overview of the steps you need to take and guidance on how to go about it.
On this page:
- Verifying subcontractors
- Paying subcontractors
- Issuing payment and deduction statements
- Making monthly returns
Verifying subcontractors
You may need to 'verify' a subcontractor with HM Revenue & Customs (HMRC) before you first pay them. Verification is the process of checking with us whether your subcontractor has registered under CIS and what their tax status is.
Before you verify a subcontractor, make sure the contract between you means that they're really self-employed. If the contract's a 'contract of employment' then they're an employee and CIS doesn't apply. You can download a factsheet from the HMRC website to help you decide whether your workers are employed or self-employed. The fact that a subcontractor is registered for CIS does not mean that they are self-employed.
Find out more about whether your subcontractor is classed as employed or self-employed
When do you need to verify a subcontractor?
As a general rule, you'll need to verify a subcontractor if you haven't included them on a monthly CIS return in the current tax year, or in one of the two tax years before that. A tax year runs from 6 April in one year to 5 April in the next.
Because the current CIS rules were introduced in the 2007-08 tax year, there's a special arrangement if you pay a subcontractor during the first two years of the new scheme. You don't need to verify them if:
- you've already included them on a return you made in 2007-08 or 2008-09
- you've made a previous payment to them since 5 April 2005, (or 5 April 2006 if next paying them in 2008-09) and when you last paid them you saw a Tax Certificate that expired later than March 2007, a Registration Card, or a Temporary Registration Card that expired later than March 2007
How to verify a subcontractor
To verify a subcontractor you need to contact us by:
- calling the CIS Helpline on Tel 0845 366 7899
- using the HMRC website
- using Electronic Data Interchange (EDI) or other third party software
Whichever way you choose, you'll need to have certain information ready. You'll need the following details about yourself to hand:
- the name of your business or organisation
- your unique taxpayer reference (UTR)
- your Accounts Office reference
- your employer reference
You'll also need the following information about the subcontractor:
- their name, or the name of their business or company
- their UTR
- the partner's name if they're a partnership
- their National Insurance number (if you know it) if they're a sole trader
- the partner's UTR or National Insurance number if they're a partnership (or, if the partner's a company, that company's UTR or company registration number)
- their company registration number if they're a company
Finally, you'll need to be able to confirm that you've agreed a contract with the subcontractor, or that you've formally accepted their contract tender.
We'll check these details against our records, confirm whether the subcontractor's registered, tell you how to pay them and give you a verification reference number. You'll get a slightly different type of reference number if we can't verify that the subcontractor's registered with us, and, in that case, it's very important to keep a note of it.
Use HMRC's online services to verify subcontractors
Verify a subcontractor on the HMRC website
Paying subcontractors
When we verify a subcontractor, we'll tell you how to pay them. This could be:
- gross - meaning you don't make any deductions
- net of deductions at the standard rate (20 per cent)
- net of deductions at the higher rate (30 per cent), because the subcontractor isn't registered or couldn't be verified for some other reason
If you don't need to verify a subcontractor because you've included them on a previous CIS return you should pay them the same way you paid them last time. We'll let you know if we change a subcontractor's payment status.
Making deductions
To make a deduction from a subcontractor's payment, start with the total - gross - amount of the subcontractor's invoice and then take away:
- any VAT they've charged
- the amount of any Construction Industry Training Board (CITB) levy they've paid
Then take away the amount the subcontractor actually paid for each of the following (including VAT if they're not VAT registered):
- materials
- consumable stores
- fuel used - except for travelling
- plant hire
- manufacturing or prefabricating materials
Finally, apply either the standard or the higher rate percentage to the amount that's left to work out how much to deduct.
Making payments to subcontractors
Once you know how much to pay the subcontractor you'll probably pay it to them directly. But they could authorise you to pay a third party like a factor.
Keep a record of every payment you make to a subcontractor. Include details of:
- the gross invoice amount excluding VAT
- if you made a deduction, the actual cost of any materials (excluding VAT if the subcontractor is VAT registered)
- any deduction you made
Making payments to HMRC
The deductions that you take from a subcontractor's pay will need to be paid over to us. To find out more about how to make payments to HMRC, follow the link below.
How to pay CIS deductions to HMRC if you're a contractor
Issuing payment and deduction statements
You must give a written statement to every subcontractor from whose pay you are required to make a deduction. You have to do this within 14 days of the end of each tax month. A tax month runs from the sixth day of one month to the fifth day of the next month. You can give a subcontractor a statement each tax month or, if you pay them more often, one for each payment. Always give it to the subcontractor even if you pay an authorised third party.
If you and the subcontractor agree, you can issue statements electronically, as long as the subcontractor can store and print them. Each statement must include:
- the name of your business and your employer tax reference
- either the date when the tax month in which you made the payment ended, or the date when you made the payment
- the subcontractor's name and UTR
- the subcontractor's verification reference number if the deduction was at the higher rate
- the gross amount before you made the deduction but after you'd taken off any VAT, CITB levy, materials costs and so on
- the cost of any materials you took off before making the deduction
- the amount you deducted
If a subcontractor needs a replacement statement for some reason you can give them one, but you must clearly mark it 'Duplicate'.
To help you prepare your subcontractors’ payment and deduction statements, as described in Appendix E of the booklet CIS340 - Construction Industry Scheme, the following form is now available for you to download, complete and give to your subcontractors. If you need to verify your subcontractors’ payment status please refer to the ‘Verifying’ and ‘Paying subcontractors’ sections above.
Payment & Deduction Statement (PDF 27K)
Issuing gross payment statements
You don't have to give statements to subcontractors whom you pay gross, but it's good practice to do so. You could include some of the information that you put on statements of deduction.
Making monthly returns
As a contractor you'll have to make a CIS return to us every month, even if you've made no payments. The return gives details of every payment you made to subcontractors under CIS during the last tax month. You can make your monthly return:
- through the HMRC website
- electronically using EDI
- by post
If you're making a 'nil return' because you haven't made any CIS payments to subcontractors during the last month you can also do it by phone on Tel 0845 366 7899.
If you know that you're not going to make any payments to subcontractors for a period of up to six months you can contact our CIS Helpline and ask for the scheme to become 'inactive' for that period. We won't send you any returns for that period.
You must also tell HMRC Accounts Office if you won't be making any PAYE (Pay As You Earn) payments for that period too.
You can contact the CIS Helpline on Tel 0845 366 7899.
You can contact the Shipley Accounts Office on Tel 01274 530750 and the Cumbernauld Accounts Office on Tel 01236 736121. For general PAYE enquiries you can contact the PAYE Helpline on Tel 0845 366 7816.
Making your monthly contractor returns under CIS
Make your monthly return through the HMRC website
Read HMRC guidance on employment status
Find out how HMRC reviews subcontractors' gross payment status
