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Your business must register with HMRC as a contractor if you are:
In order to comply with CIS regulations as a contractor, you must deduct some percentage before making payment to your subcontractors. Your subcontractors can be an individual, another limited company or partnership.
HM Revenue and Customs (HMRC) will tell you how much to deduct from a subcontractor’s payments when you verify them. Verification can be done through commercial software or HMRC CIS online service.
The rates for CIS deductions are:
These deductions must be paid to HMRC, the same way as PAYE – these are accounted for as an advance payment towards the tax and National Insurance bill of the subcontractors.
In order to make CIS deductions for subcontractors payments, start with the total (gross) amount of the subcontractor’s invoice and then deduct the following expenses;
The balance left over will be the cost of Labour for doing the construction work, so we need to apply the relevant CIS rate on that amount. Keep that CIS deduction for payment to be made to HMRC and paid the rest to the subcontractor (for all the materials, direct costs and cost of Labour after CIS deduction).
You as a contractor have an obligation to run the CIS payroll no matter if you have any PAYE employees or not.
Your company must submit a monthly report (RTI) to HMRC providing certain information, including the amount of CIS deducted from the subcontractors. The report needs to be made for all individuals and businesses you employ as CIS subcontractors as part of your working arrangements.
You must pay all the CIS deductions made, to HMRC in the same way as other PAYE payments.
Author: Haroon Ashfaq