A subcontractor is a person or company that performs work on behalf of another company, usually as part of a larger project. In the UK, subcontractors are regulated by the Construction Industry Scheme (CIS), which aims to ensure that everyone in the construction industry pays the right amount of tax.
Under the CIS definition, a subcontractor is a person or company that is contracted by a contractor to carry out construction work. The contractor is usually the main contractor, who is responsible for the overall project, while the subcontractor is contracted by the main contractor to carry out specific work on the project.
As part of the CIS, subcontractors must be registered with HM Revenue & Customs (HMRC). This involves providing personal and company details, including their National Insurance number, UTR (Unique Taxpayer Reference) and VAT registration number if applicable.
Subcontractors are also required to submit monthly CIS returns to HMRC, which details the payments they have received from contractors. The CIS return includes details such as the contractor`s name and address, the amount paid, and the deduction made for tax.
Subcontractors are subject to deductions for tax and National Insurance contributions (NICs) made by the contractor. These deductions are made at a rate of 20% for tax and 13.8% for NICs, unless the subcontractor is registered as a limited company, in which case the rate is reduced to 19%. The deductions made by the contractor are paid to HMRC and credited against the subcontractor`s tax liability for the year.
In addition, subcontractors must also keep detailed records of their business transactions and expenses and maintain accurate accounts. This is to ensure that they can accurately calculate their tax liability and ensure that they are paying the correct amount of tax.
In conclusion, a subcontractor under CIS definition is a person or company that is contracted by a contractor to carry out construction work. They are subject to various tax requirements, including registration with HMRC, submission of monthly CIS returns, and deductions for tax and NICs. It is important for subcontractors to maintain accurate records to ensure that they are paying the correct amount of tax.