A large portion of self-employed individuals work in the construction sector, the CIS (Construction Industry Scheme) registration system was created specifically for them. Under this scheme, the self-employed individual has their details verified in HMRC’s system and are provided a verification number.
It is essential for tax deduction within the construction sector, applying to both contractors and subcontractors.If a subcontractor has not been verified under CIS, the contractor is required to deduct an income tax advance of as much as 30%. An individual can indicate on the self employment registration form that they plan to work under CIS. This will streamline the process as their details will be verified when the application for the UTR is being processed. Another way of getting verified under CIS is either online on the gov.uk website or by calling the HMRC CIS department. The self-employed individual’s details are checked and verified. A verification number may be given to provide to the contractor.
Once being verified under CIS, the self-employed individual will have 20% deductions made instead of the higher rate of 30%. Subcontractors should also ensure that their contractors issue them with monthly subcontractor statements, which serve as the basis for tax reconciliation at the end of the tax year. This statement should have the tax deduction calculation listed, clearly indicating what was earned in gross, if any materials were reimbursed, how much CIS was deducted, and the subcontractor’s net payment.
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