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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: construction industry scheme (CIS): scheme overview: CIS - from 6 April 2007 - making payments to subcontractors

When a contractor makes a payment to a subcontractor the payment may consist of several elements, for example:

  • payment for work done
  • cost of materials
  • travel and subsistence
  • other expenses

The contractor must ensure that:

  • each element is treated correctly for tax purposes and
  • where a deduction is to be made from the payment that it is made from the correct amount.

Unless the subcontractor is registered for gross payment the contractor must make a deduction at the correct amount in accordance with instructions given by HMRC (COG910040).

The contractor must pay the deductions to HMRC by the 19th of the month unless he pays electronically when payment must be made by the 22nd of the month.

The contractor must also provide the subcontractor with a statement relating to payments and deductions made. The statement must be provided at least every tax month and must be written unless the subcontractor and contractor have agreed that it will be provided electronically.

The statement must show the:

  • contractors name
  • contractors reference
  • tax month to which the payments relate or the date of the payment
  • subcontractors name
  • subcontractors unique taxpayer reference (UTR)
  • total amount of payments made during the period
  • total amount included in the payments relating to direct cost materials
  • total amount of CIS deductions made from the payments

If the subcontractor is not registered the statement must also show:

  • the verification reference relating to that subcontractor (COG910040)

A contractor is not required to retain copies of statements issued to subcontractors. The caseworker should:

  • satisfy themselves that the contractor understands his obligations to provide a statement,
  • has systems in place to be able to produce statements and
  • if necessary obtain copies of statements from subcontractors.