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How Do I Pay My Subby?

Updated: 3 days ago




Businesses and individuals providing property-related services may eventually find they need a helping hand when completing projects. This inevitably results in them either employing help or engaging the services of a sub-contractor.


Most property-related services that involve property construction, or property maintenance are covered by the Construction Industry Scheme or CIS for short. By engaging a sub-contractor, any such services involving the provision of labour fall under CIS, and therefore the person engaging sub-contractor services is deemed a contractor.


As a contractor, you must first register as a contractor under CIS with HMRC. There are then several responsibilities of the contractor:


·       It is the contractor's responsibility to deduct part of the payments to any sub-contractor on behalf of HMRC. It is also the contractor’s responsibility to report and pay HMRC any deductions monthly. Failure to do so can result in HMRC charging the contractor for any missed deductions and penalties.

 

·       Before paying a sub-contractor, a registered contractor must check the sub-contractor is registered with HMRC. The registered sub-contractor must provide their UTR (Unique Taxpayer Reference) number, which the contractor must validate with HMRC online to check that the sub-contractor is registered under CIS and to check the deduction that should be applied.

 

·       The sub-contractor should provide the contractor with an invoice, splitting out labour from materials. The invoice should show a breakdown of the deduction at the relevant deduction rate, net of VAT.


There are three levels of deductions that apply to sub-contractors. Only HMRC can decide what deduction applies to the sub-contractor:

·       30%

·       20%

·       0% (Gross Status)

 

·       The contractor must provide the sub-contractor with a Payment and Deduction Statement by the 19th of the following month.

 

·       Deductions are then reported to HMRC, and payment is made to HMRC by the 19th of the following month.


There is no requirement for an annual return.



 



 



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