CIS and 'Scott the scaffolder'
Scott the scaffolder is self-employed. Every year, for the last three years, Scott has worked for many different companies, on numerous different building projects.
For each of the companies he works for, he brings along his own scaffolding, but engages a number of scaffolders to help put it up. He engages them regularly throughout the year, but they also work for other contractors.
Scott wants to be paid gross under the construction industry scheme as a self-employed business. But, before he can be paid gross, he has to register with HM Revenue & Customs (HMRC) and pass three tests set out in law:
- the business test;
- the turnover test; and
- the compliance test.
Firstly, he must show that his business is run in the UK through a bank account. Then, he must show that he has a construction turnover of at least £30,000, excluding VAT and the cost of any materials. Finally, Scott has to show that he has complied with all his tax obligations during the 12 months leading up to his application to be paid gross.
If Scott passes the tests, he is registered by HMRC as a subcontractor entitled to gross payment. However, any contractor that subsequently engages Scott will still need to decide if the contract between them is one of self-employment. Then, having established this, the contractor needs to verify Scott’s details with HMRC before making the first payment. As Scott has already registered with HMRC for gross payment, HMRC will confirm this to the contractor, who may then pay Scott without making any deductions from his payments.
Scott also has responsibilities. He has to be certain that the scaffolders who work for him are genuinely self-employed, otherwise he must put them on the payroll as employees. Where he is satisfied that the scaffolders working for him are self-employed, he becomes their contractor and has to send a monthly return to HMRC stating how much he has paid them.
Scott has to give details on the monthly return of any deductions he has made from their payments, either at the standard or higher rate. The higher rate of deduction is applied where HMRC has no record of the subcontractor's details. Otherwise, the standard rate applies where the subcontractor is registered for CIS, but not registered for gross payment.
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The Editor © Hardhatter 2007