The role of Umbrella Companies has become vital in the last two decades,as they provide a unique employment solution, where workers can undertake a series of assignments with different end clients while working through the same employer. Like any other Umbrella Company, DNS Umbrella also acts as an intermediary between the contractors it employs and its clients or an agency. Since an Umbrella company plays a role of anintermediary, it enables a contractor to be free from the burden of setting up their ow limited company,reduces their administrative work and responsibility of complying with the taxman.
What is CIS?
Umbrella companies have spread their wings and are influencing different sectors in the country. Among which, CIS or the "Construction Industry Scheme", holds a significant place. The Construction Industry Scheme is referred to be a unique set of rules, crafted by the tax office to monitor the payments made are made to a contractor working in the construction industry. Since it’s introduction in 2007, all construction industry workers have to register themselves under the scheme with HMRC or work through a registered business.
The work that comes under the CIS includes all construction activities undertaken in the UK on a building or structure, civil engineering work like roads and bridges; and includes laying of foundation, groundwork, construction, alteration, repair, extension, demolition and dismantling.
Also See: Umbrella vs Pay As You Earn (PAYE), what’s the difference?
Different ways of working for CIS contractors
DNS Umbrella offers two ways in which a contractor can undertake work in the construction industry – either as a Self-employedworker or through PAYE Umbrella.The options are explained below.
Self-employed (Sole Trader CIS)
– Due to the changes in the legislation, it is now very difficult to prove that a worker (also referred as a subcontractor) is self-employed because to be eligible, the client needs to acknowledge that there is no (right of) supervision, direction or control in the manner the worker provides their services or they have an unfettered right to send a substitute. The tax benefits of working as a self-employed can be significant as the worker only pays Income Tax and Class 2 National Insurance Contributions (NIC) at £3.05 per week (in 2020/21)and Class 4 NIC at 9% if the profits are over £9,500 (in 2020/21).If the worker is classed as a self-employed, they will first need to register with HMRC as a sole trader and under the CIS by calling HMRC helpline on 0845 915 4515. They will need National Insurance number to register with the department, if not available they should call the Department for Work and Pensions on 0845 600 064to obtain one.
Once registered with HMRC, they will receive a Unique Tax Reference (UTR) number which is a 10-digit number.
Under the CIS Self-employed Umbrella solution, DNS Umbrella will be the contractor responsible to make CIS deductions before transferring the money to the worker. The rate of deduction is usually:
- 20% (excluding VAT and materials) - for worker fully registered under the CIS Scheme.
- 30% (excluding VAT and materials) - for workers who are not fully registered under the CIS Scheme.
- It is also possible to apply to receive payments gross if certain conditions are met, which can be discussed with us.
DNS will then provide a certificate confirming the deductions to the worker each month and submit the monthly CIS returns to HMRC. The worker or subcontractorneeds to file a self-assessment tax return with HMRC at the end of the tax year, to claim allowable business expenses and to pay/claim refund for any underpayment/overpayment of taxes.
PAYE
– PAYE stands for Pay As You Earn. Under this method, the worker or subcontractor is employed under a contract of employment with DNS, and DNS deducts the necessary PAYE and national insurance contributions and pays the worker a salary. Furthermore, the workers are entitled to statutory employment rights and other benefits like DNS employee perks. This is the most straightforward way of operating for CIS workers.Also See: Understanding IR35 or off-payroll Working Rules
What expenses CIS contractors are entitled to claim?
Construction Industry Scheme or CIS thrives on making a comfortable environment for its workers and have drafted a framework, which enables one to claim the expenses theyare entitled to. So far the costs have been incurred wholly and exclusively for business, a CIS worker can claim the following -
Travel and Subsistence expenses
– If the worker is required to use a vehicle due to their work, they can claim mileage on the business journey they undertake and the costs on meal.Materials, Tools and Equipment
– To support or complete the work, an individual can claim expenses for the purchased tools, equipment, and materials.Clothing and Safety Equipment
– If the worker provides their own protective clothing and safety gear, the costs can be reclaimed.Use of Home
– If they are required to practice work for home, theycan claim for a few of the expenses.Professional fees
– Like business insurance and accountancy fees can be claimed.Other Costs
– Telephone and mobile expenses or any other costs of running the business.
If the worker is treated as an employee then the above expenses can be claimed provided, they meet the wholly, exclusively and necessarily test.It is advisable that the worker keeps adequate financial records and receipts for 6 years if claiming expenses.
Working through DNS Umbrella
We normally invoice the agencies on a weekly or monthly basis. The worker will receive a pay in their nominated bank account on a weekly/monthly basis after the funds are received from the agency, less taxes depending on the model and our weekly/monthly margin.
To register with us for CIS Umbrella give us a call today on 020 3500 2658 or email info@dnsumbrella.co.uk.
Also See: Difference between Agency Payroll and PAYE Umbrella