As aspiring Construction Worker, contractors and subcontractors need to know the Construction Industry Scheme (CIS) since it affects their profession as construction workers.
What is CIS payroll? Well, it just another term for a tax collected that a particular contractor and subcontractor pay throughout the given amount of time or project.
When a contractor is CIS registered, they reduce the amount of total payment that goes to the subcontractor and later collected to pay HM Revenue and Customs. It will be considered an initial payment to cover national insurance and taxes that every subcontractor must pay.
It is designed for subcontractors because most subcontractors are self-employed and unable to pay their taxes. The contractor then holds the full payment and deducted the amount of tax that needs to be collected. Click here to know more about Construction Payroll.
As for starting your career in this industry, below are listed important information related to CIS that will help your future profession.
- Contractors are needed to register for CIS, while subcontractors are optional. If the business had a transaction of more than £1m per year, it can be considered a contractor. A subcontractor is any person who agrees to do construction work for a contractor.
- The subcontractor sends a monthly invoice to contractors. If subcontractors are CIS registered, the contractor takes 20 percent off the amount invoiced for labor and puts it in the tax pot. If not, 30 percent will be taken instead.
- Subcontractor can hire any assistance as an employee and needs payment through PAYE. However, if they are self-employed subcontractors, any person facilitating a contract becomes a contractor and needs to be paid through CIS.
- A subcontractor can be a contractor at the same time by paying his crew through CIS and accepting payment from its contractor. In this case, the priority includes submitting a monthly CIS return for your workers and an annual return as a subcontractor.
- Registered contractors must fill out a monthly return with a detailed deduction payment from all subcontractors.
- Subcontractor needs to fill out annual CIS return. The total return invoice with full tax period minus including allowance expenses and will determine the tax you should pay. After the submission of the annual return, there will be an entitled refund.
- CIS registered subcontractors can claim a refund for any VAT in any goods or services expenses.
The construction industry involves tax payments by individual workers and collected by the government to pay for services, like health insurance, life insurance, pension, etc. Thus, it is necessary to pay for these taxes and collected them by HM Revenue and Customs.
Furthermore, subcontractors must register in CIS even if optional to avoid additional deductions in future transactions.