HMRC uses the Construction Industry Scheme (CIS) with contractors who hire subcontractors for work. Before a contractor can pay their subcontractors, up to 30 percent is deducted from their pay in advance to cover any tax and national insurance liability.
There are two ways to reduce these advance deduction being made from the subcontractor's pay. The first is to have the subcontractor register for the CIS scheme, this will mean that 20 percent is deducted rather than the higher 30 percent for unregistered CIS workers.
Use the calculator below to see how much tax you owe compared to the amounts deducted from you in advance. You will either owe more tax or be due a refund.
The other method to reduce advance payments is to apply for 'gross payment status' when the subcontractor registers for CIS.
Gross payment status requires HMRC to check that the contractor satisfies the following:
- The subcontractor has paid tax and NI on time in the past.
- The subcontractor's business utilises a bank account.
- Turnover over the previous year must be at least £30k (sole traders), £30k (each partner in a partnership - min £100k for the partnership), £30k (each director in a company - min £100k for the company).
- For a company with fewer than 5 controlling members, turnover for each member must be at least £30k annually.
Following satisfactory registration of the gross payment status, a self assessment tax return (or corporation tax return for limited companies) must be completed at the end of the tax year in order to pay the correct taxes owed on the payments received.