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Tax deductions for subcontractors operating within the construction industry scheme (CIS)

Q. I am a builder. I have recently started operating the construction industry scheme (CIS) although it is still quite new to me. I have recently taken on two labourers, both of whom are registered with HMRC as subcontractors. One of the subcontractors worked for me 3 months ago, the other has never worked for me. Could you please clarify what i need to do with regards to deducting tax from their wages?

A. Before you can pay a new subcontractor, you need to ‘verify’ them with HMRC.
HMRC will tell you:

  • whether they’re registered for the CIS; and
  • what rate of deduction to use if they can be paid without making deductions.

You do not, however, need to verify a subcontractor if you have included them on a CIS return in the current or last 2 tax years.

The CIS deduction rates are currently as follows:

  • 20% for registered subcontractors
  • 30% for unregistered subcontractors
  • 0% if the subcontractor has ‘gross payment’ status- for example they don’t have deductions applied.

You are required to remit these deductions to HMRC as they count as advance payments towards the subcontractor’s tax and national insurance bill.

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