This section is designed to clarify the myths from the facts of CIS. Click on each myth to see the fact.
Myth: I am registered as self employed, so I must be able to be paid via CIS.
Fact: Whether a payment should be made under the CIS rules depends on 2 things - the contract under which the work is carried out being one of Self-employment and the Construction Operation being one that is within the scope of the scheme. It may be that you are self-employed but the operation is outside of the scheme in which case CIS deductions should not be made.
Myth: My last contract was CIS so this one must be.
Fact: Not necessarily. Whether a payment is subject to CIS rules will depend upon the contract (employed or self-employed) and the construction operation being carried out. For example, a Tree Surgeon would be subject to CIS payments if he was felling trees to clear a site in preparation for a new housing estate, but not if he was felling trees as part of general estate management. Both of the 2 factors (employment status and construction operation) must be looked at individually, and with reference to that contract to see if they are within the rules, and only if both are within the rules will CIS payments need to be operated.
Myth: "My mate says I'll be better off going CIS."
Fact: Your mate might be right, however, it isn't a matter of choice whether you go through the CIS scheme. The scheme dictates what contracts must have CIS deductions made. If the contract you are working on is outside of the scope of CIS because it is not a construction operation that requires CIS payments, then even if you register as self-employed and get a UTR, CIS payments won't be taken. The Contractor you are working for is under an obligation to operate the scheme correctly, and it will be the Contractor and not yourself that decides if the scheme should operate.
Myth: I'm not registered for CIS, so I don't have to worry about payments through CIS
Fact: It is up to the Contractor making the payments to operate the scheme correctly, and that means that they will have to decide upon your employment status, and whether the operation is within the CIS rules. If they decide that the CIS rules cover the payments to be made to you, then they will try to verify you. If you aren't registered then they will be unable to verify you, and will therefore be told to make payments under deduction at a rate of 30%.
Myth: By being CIS registered I avoid large tax bills
Fact: The deductions that are made from your payments should be thought of as a payment on account. At the end of the tax year, as a self-employed person you will be required to submit a self-assessment, and that will be used to calculate what you owe and what has been deducted so far. Then you will need to make a balancing payment, or, if you're lucky, could be due a refund! Don't forget that CIS only covers tax payments, you will need to make Class 2 National Insurance payments separately, and depending upon your earning maybe liable for Class 4 at the end of the year.
Myth: I am registered as self-employed so of course my contract is one of self-employment.
Fact: Not at all. It doesn't matter whether you are registered as self-employed, it matters what the reality of the situation is. Even if your contract (written or verbal) states that you are self-employed, the courts will look at the actual circumstances of how the relationship works. There are numerous indicators as to whether you are or are not self-employed, such as whether you take a financial risk, whether you negotiate a fixed price for a job irrespective of how long it takes you, whether you work set hours and are paid an hourly rate etc. For more details look at our handy guide "Are you Self-Employed?", see the HMRC website
www.hmrc.gov.uk or talk to an Employment solicitor.
Myth: I was self-employed 6 months ago, and I am still on the same contract so of course I am still self-employed
Fact: Actually, the longer you work somewhere the more likely it is that you become employed. What the contract says is not the deciding factor, it is the reality of the relationship. If you start somewhere to do one job and they keep re-engaging you, to the point that you no longer have to worry about finding your next contract then that will start to tip the scales toward the contract being one of employment. Of course, there are lots of other tests to bear in mind and length is only one factor in deciding if you are employed or self-employed, but be aware that the reality of the relationship 6 months ago, and the reality of the relationship today can be very different.
Myth: Why does it matter if I am being treated as Self-Employed when in reality I am Employed?
Fact: It matters to the amount of tax and National Insurance that you pay. It is estimated that there are 300,000 contractors within construction that are falsely self-employed, and HMRC are looking at ways to clamp down. If it is decided that you are "falsely" self-employed, you could face a large bill for underpaid tax, a fine, and even being named and shamed as a tax evader!
Myth: If I go through a CIS payment solution, such as Simplify CIS, all my payments are taken care of.
Fact: No! For a start, you are responsible for your own National Insurance and should be paying Class 2 contributions. Secondly, the total amount of tax and NI you are due to pay will be calculated via your self-assessment. We recommend that you think of the CIS deductions we take as payments on account, and anticipate there being more to pay at the end of the tax year - how much will depend on your self-assessment, and there is always the small possibility that you get a rebate!
Myth: If you are telling me that I am not within the rules of the CIS scheme then how do I get paid.
Fact: This really depends on why you fall outside of the CIS scheme.
- If it is because the contract is not one of self-employment, then you can get paid through PAYE using a service such as Simplify CIS' Umbrella service, and then PAYE & NI will be deducted. When you do your end of year self-assessment you will enter the figures from employment and amounts of Tax and NI deducted, and that will all be taken into account by the Tax Man in calculating any balancing payment. The Tax and NI deducted throughout the year becomes a payment on account just like the CIS deductions.
- If it is because the contract is not within the definition of a "Construction Operation" then you invoice gross.
Myth: How do I get gross payment status?
Fact: This is something that HMRC award based upon your history as a tax payer. They perform an annual review called a Tax Treatment Qualification Test (TTQT) and look at whether you are up to date with payments, have been making returns on time etc. For more information look at www.hmrc.gov.uk
Myth: How do I register under the CIS Scheme?
Fact: Our Handy Guide "
How to register for CIS" will tell you the steps you need to take, and gives you contact numbers for the people to speak to at HMRC.
Myth: How do I set up payments for National Insurance?
Fact: When you registered as self-employed you should have started to pay Class 2 National Insurance. The rate for the tax year 2010/11 is £2.40 per week, and most people pay this by Direct Debit. If you haven't yet registered as self-employed, then our Handy Guide "
How to register for CIS" will tell you the steps you need to take, and gives you contact numbers for the people to speak to at HMRC.
