Moonworkers lets you manage your CIS subcontractors alongside your employees, so you can verify them with HMRC and include them in your CIS 300 return without leaving the app. This article explains how subcontractors work in Moonworkers, and the Construction Industry Scheme (CIS) rules a business needs to know when it pays subcontractors for the first time. For the full statutory detail, see our companion article "The Construction Industry Scheme (CIS)."
Where do I find subcontractors in Moonworkers?
Subcontractors are managed under People > Subcontractors. The list works like the employee list: you can open a subcontractor to see their details and their work information, which is deliberately simpler than an employee profile because a subcontractor runs their own business and needs fewer fields. As in the UK a subcontractor is still paid through your payroll, you can set a working pattern and define their pay in the same way as for an employee, with the same range of options. The key difference is that a subcontractor carries the extra CIS information (such as their UTR) that Moonworkers uses when it verifies them and builds the CIS 300.
What is CIS and who has to operate it?
The Construction Industry Scheme is an HMRC tax deduction scheme for most construction work in the UK. Under it, a contractor deducts money from a subcontractor's payments and passes it to HMRC as advance payments towards the subcontractor's tax and National Insurance. If your business pays subcontractors for construction work, you are a contractor and must register for CIS before you pay your first subcontractor, verify each subcontractor, deduct the correct amount, file a monthly CIS 300 return and give each subcontractor a payment and deduction statement. A business whose main activity is not construction but which spends more than £3 million on construction in a rolling 12-month period is a "deemed contractor" and must also operate CIS.
Why do I need the subcontractor's UTR?
The UTR (Unique Taxpayer Reference) is the number HMRC uses to identify the subcontractor, and Moonworkers needs it to verify them and to report them on the CIS 300. Verification is the step where HMRC confirms whether the subcontractor is registered and tells you which deduction rate to use, and it cannot be done without the correct UTR. For a sole trader you record their UTR and National Insurance number; for a company you record the Company Registration Number and the Company UTR. If the UTR is missing or wrong, the match with HMRC will fail and you may have to deduct at the higher rate, so it is worth entering it carefully before you run the verification.
What are the mandatory CIS rules when I pay a subcontractor for the first time?
Before you make the first payment to a new subcontractor you must verify them with HMRC. Verification confirms whether they are registered for CIS and returns the deduction rate you must apply, along with a verification reference number that you should keep. You verify using your own details (your UTR, Accounts Office reference and employer reference) together with the subcontractor's details. You do not need to verify a subcontractor you have already included on a CIS return in the current or previous two tax years. In Moonworkers you can run this verification directly from the subcontractor's profile, so the match is done in a click once the UTR is in place.
What is the "match" during verification, and what are the deduction rates?
When you verify a subcontractor, HMRC either matches their record and confirms they are registered, or fails to match them. The result determines the deduction rate, of which there are three. The standard rate is 20%, which applies to a subcontractor who is registered for CIS and successfully matched. The higher rate is 30%, which applies where the subcontractor is not registered, or cannot be matched during verification. The third rate is 0%, which applies to a subcontractor who holds gross payment status and is therefore paid in full with no deduction. Moonworkers records the rate returned by HMRC against the subcontractor so the correct amount is deducted automatically when you pay them.
What is the deduction actually taken from?
The CIS deduction only ever applies to the labour element of a payment, never the whole invoice. Before working out the deduction, you remove the cost of materials the subcontractor has paid for, any VAT they have charged, and any Construction Industry Training Board levy, and the rate is applied to what remains. For example, if a registered subcontractor invoices £1,000 for labour plus £400 of materials, the 20% deduction applies only to the £1,000 labour, giving a £200 deduction, and the subcontractor is paid £1,200. Materials must be a genuine cost and must not be inflated to reduce the deduction.
How do sole traders, companies, partnerships and trusts differ?
A subcontractor can be a sole trader, or trade through a company, a partnership or a trust, and the type changes which details Moonworkers uses on the CIS 300. For a company you record the trading name and the company name, because both can appear on the return, together with the Company Registration Number and the Company UTR. Moonworkers also lets you handle the VAT position for a company subcontractor. Selecting the correct type and entering the matching references is important, because the CIS 300 has to carry the details that let HMRC identify the subcontractor correctly.
What is the CIS 300 and how does Moonworkers use these details?
The CIS 300 is the monthly return a contractor must send to HMRC showing the payments made to all subcontractors in the tax month and the deductions taken from them. A CIS tax month runs from the 6th of one month to the 5th of the next, and the return is due by the 19th of the month in which that tax month ends. Because Moonworkers holds each subcontractor's type, references and verified deduction rate, it can pull these into the CIS 300 and into the payment and deduction statements automatically, which is why it matters to enter the UTR, registration numbers and subcontractor type correctly from the start. For the deadlines, penalties, gross payment status tests and how a limited company reclaims CIS deductions suffered, see the companion article "The Construction Industry Scheme (CIS)."
Get started
To manage your subcontractors, sign in and go to People > Subcontractors, open or add a subcontractor, enter their UTR and details, then run the verification from their profile. Sign in at https://payroll.moonworkers.co.uk/auth/login.