Bricklayers, ground workers, electricians, plumbers, roofers and window fitters are typical trades that are all usually classified as subcontractors when they work for other businesses. Read more about some of the tax implications for sub-contractors…
As a subcontractor, your income from other traders is often received net of a deduction of tax. The tax deducted can be at a rate of 20% or 30%. It is most common for a 20% rate to be applied. However, in some circumstances you may be able to apply for a gross payment certificate.
When you first start work in the construction industry you will need to register as self employed with H M Revenue & Customs. You will need to supply your full name, address, national insurance number and date of birth.
Once registered you will be given a tax reference called a UTR, which is a 10 digit number. You will need to make HMRC aware that you are going to be a subcontractor by calling the CIS (Construction Industry Scheme) helpline.
When you take your first payment for work done, the contractor you worked for will need to verify you through the HMRC CIS team, which can be done online or by telephone. Once verified HMRC will confirm you are liable to a 20% or 30% deduction. Please be aware that if you have old tax arrears you may be given a 30% deduction.
Tax is only deducted from the labour element of your work. If you supply materials you do not suffer tax on these.
The contractor you work for will supply you with a monthly certificate showing the tax they have deducted. Keep these certificates throughout the year. Also keep all receipts for costs you have incurred doing your work. Items such as fuel, other vehicle running costs, telephone bills, tools, equipment, protective clothing and insurance costs are all allowable costs.
After 5th April each year, it is time to summarise all of your information to prepare your accounts and the subsequent Self Assessment Tax Return. The profit from your accounts is adjusted for any other tax allowances and adjustments. This adjusted profit figure is then used to calculate the income tax and class 4 national insurance liability. The CIS deducted is then credited against this liability and often results in a tax refund becoming due. With help from your accountant you can maximise the refund due so don’t delay! We’re here to help – get in touch!