Employment Status

Are you a contractor? If you work for someone else, it is important to know whether you are working for that person in an employed capacity or in a self-employed capacity as an independent contractor.

Your employment status will determine the charge to tax on income from your employment or self-employment. It will also determine the class of NICs, which are to be paid.

Umbrella Companies employ you for tax purposes and complete central returns for all their contractors. It's less hassle and more flexible for you but take home pay is typically less than that the limited company option.

The best option for you depends on your plans, 'one off' contract or 'contractor for life'? [Read More...]

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CIS Glossary of Umbrella Company Terms

CIS Glossary of Terms

Definitions, explanations of common terms, words and phrases used in the Construction Industry Scheme.

A

Accounts Office (AO)

HMRC office responsible for handling payments made by customers

Accounts Office reference (AO ref)

Reference used to identify each BROCS record (employer or contractor scheme). See BROCS

Appointee

A third party who is not an agent but has been appointed by an HMRC customer to act on their behalf. Typically, this may be a family member, friend or business associate of the customer. In all cases HMRC must have evidence of the customer's consent for the appointee to act.

Agent

An agent is authorised by a contractor or a subcontractor to perform certain construction industry scheme tasks on behalf of either the contractor or subcontractor.

Arms-Length Management Organisation (ALMO)

A company set up by a local authority to manage or improve all or part of its housing stock. The company is owned and run by the local authority and operates under the terms of a management agreement between the local authority and the ALMO.

Alternative turnover threshold

The amount of construction turnover a partnership or company subcontractor needs to show net of relevant materials to pass the alternative turnover test.

Authentication

The process by which the identity of the contact being made is confirmed, whether it is by the contractor, the subcontractor or a nominated agent.

B

Bank Wizard

A computer facility to verify that a bank account sort code and account number are valid.Business Review of the Collection Service (BROCS)A computer system recording employer and contractor payments made of liabilities for PAYE, Class 1 National Insurance contributions, and deductions due from self-employed subcontractors.

C

Call-off Contracts

This represents a firm commitment by a contractor to purchase goods or services from a subcontractor over a period of time. A 'Call Off', or an 'Order Off', type of contract will not be a contract in its own right.

Capacitor

A capacitor is someone (or body) appointed under particular circumstances. For example following Death, Liquidation or Bankruptcy.

Centre for Non-Residents (CNR)

Department within HM Revenue and Customs dealing with the tax affairs of businesses and individuals who are not resident within the United Kingdom. CNR is part of CT and VAT.

Citizens Identification Framework (CID)

This is a computer database of both current and historic basic personal details held for an individual.

Company Registration Number (CRN)

This is a number allocated to a company when it first registers as a United Kingdom company with the registrar of companies.

Construction Industry Scheme (CIS)

The taxation scheme applied to contractors and subcontractors working within the construction industry.

Construction operations

Operations as defined at section 74 of Finance Act 2004 that related to the construction industry.

Contact Centre (CC)

This is where a Construction Industry Scheme telephone call is handled by HMRC.

Contra

A charge for goods and services supplied by one party to another.

Contract

Any legally binding agreement under which one person (or body) does work or provides services for another person (or body). A contract includes an agreement made by word of mouth as well as a written document.

Contractor

Any of the following:

  • person(s) or body carrying on a business including construction operations carried out in the United Kingdom or its territorial waters
  • person(s) or body spending over a certain amount on construction operations carried out in the United Kingdom or its territorial waters
  • A local authority
  • A development corporation or new town commission
  • The Commission for New Towns
  • The Housing Corporation
  • A housing association or housing trust
  • Housing for Wales
  • Scottish Homes
  • Northern Ireland Housing Executive.

Corporation Tax

A type of taxation that applies to the business profits of companies.

Corporation Tax Self Assessment (CTSA)

The HMRC system by which the collection of Corporation Tax from companies is administered.

CT41G

Form completed by a company when registering as a tax payer for Corporation Tax.

CWF1

Form completed by a customer when registering as a tax payer for Self Assessment

D

Debt factor

A subcontractor may enter into a factoring agreement such that the factor is responsible for collecting the subcontractor's debts. The factor recovers the debt from the payer (the contractor), retains a portion under the terms of the factoring agreement and pays the balance to the subcontractor.

Debt Management and Banking (DMB)

Department within HM Revenue and Customs responsible for the collection of all forms of taxation of income and National Insurance contributions from businesses and individuals.

Deemed Contractor

These are businesses whose main operations do not fall within the construction industry, but because their total spend on 'construction operations' exceeds a stipulated amount, they are brought within the Construction Industry Scheme.

E

e-channel

Forms or applications submitted by a customer using a computer terminal over the Internet.

Electronic Data Interchange (EDI)

This describes the process by which contractors can submit their monthly returns through electronic communications. This method of supplying return information is set up and run by the Electronic Business Unit.

Employer Business Service (EBS)

Computer system governing the name, business address and other details of employers.

Employment Status Indicator (ESI)

A tool for use by Contractors and HMRC staff on the HMRC Internet site to help determine the employment status of subcontractors being engaged.

Enquiry Centre (EC)

Local HMRC office where a customer may make an appointment to discuss their taxation affairs.

F

Firm

This is used in the technical sense to mean a partnership.

G

Gross Payment Status

Status allocated to a subcontractor that permits payments in respect of 'construction operations' to be paid to the subcontractor without any tax being deducted.

H

Her Majesty's Revenue and Customs (HMRC)

The government department that has overall responsibility for the Construction Industry Scheme.

I

Identity Check

A check carried out when a subcontractor first registers for CIS with HMRC to confirm the identity of the subcontractor, by the production of certain documents.

Inactivity

Where a contractor intends to make no payments to subcontractors for several consecutive months, they are able to request they be marked as 'Inactive', this will mean that no monthly returns are issued for this period until the contractor states they are once again 'active'.

Individual turnover threshold

The amount of construction turnover an individual needs to show net of relevant materials in order to pass the standard turnover test.

Inland Revenue Personal Reference (IRPR)

A temporary reference used when a subcontractor has not yet been allocated a National Insurance number (NINO).

M

Monthly Return (CIS300)

A return required by all contractors showing all payments made to subcontractors during each month to the fifth of that month, the return being required to be made to HMRC by the 19th of that month

Multiple turnover threshold

The individual turnover threshold multiplied by the number of partners in a partnership or relevant persons in a company.

N

National Insurance Contributions Office (NICO)

Department within HMRC that covers all aspects of National Insurance contributions

National Insurance Number (NINO)

A number allocated to an individual registering to pay National Insurance contributions for the first time.

Net Payment status

Status allocated to a subcontractor that permits payments in respect of 'construction operations' to be paid to the subcontractor under deduction on account of tax either at the standard or higher rate of deduction.

New Enterprise Support Initiative (NESI)

An HMRC helpline and IT system designed to provide new enterprises with help and support to enable them to comply with tax regulations. NESI is often referred to in the context of new employers and contractors opening PAYE schemes.

Nil Return

Is one where there are no payments, cost of materials or deductions reported for any subcontractor within the contractor scheme for the period covered by the contractor return.

Nominee

Is a person appointed by a subcontractor to receive a payment on his or her behalf from a contractor. Verification of the payment status of both the subcontractor and the nominee is required in these cases.

O

P

Pay As You Earn (PAYE)

A system of tax collection used by employers to collect tax and National Insurance from employees.

Payment and Deduction Statement (PDS)

A statement given by the contractor to those subcontractors from whom a deduction is required to be made. It is given at least monthly on the contractor's headed notepaper and shows the amount of payments made to the subcontractor that month, and the amount of deductions made from those payments.

Personal Hearing (PH)

This is a hearing that takes place before a body that is independent of HMRC which decides where there is disagreement whether an appeal made by a customer should be upheld or not.

Pre-population

This term relates to contractor monthly returns (CIS300). Where a subcontractor was included on the previous monthly contractor return or where the subcontractor has been verified by the contractor within the last three months, their name and UTR will be printed on to the next monthly return issued for completion by the contractor.

Private Finance Initiative (PFI)

This is a form of Public Private partnership aimed at enabling the public and private sectors to work more closely together in the provision of public sector infrastructure and services.

Processing Office

This is a Self Assessment term for the office 'owning', or responsible, for a taxpayer's affairs.

R

Registration

This is the process of any contractor or subcontractor registering with HMRC that they are acting as either a contractor or subcontractor or possibly both within the construction industry.

Relevant persons

Relevant persons, in the context of a company's turnover test, includes each company director and, if the company is close (that is, broadly controlled by five or fewer people), each shareholder.

Reverse premium

Is a term commonly used to describe when a landlord or developer offers inducements to prospective tenants to take up an interest in land.

S

Self Assessment (SA)

System of taxation of income for individuals, partnerships and trusts.

Self Assessment Manual (SAM)

Manual covering all aspects of Self Assessment available for viewing on the HMRC Internet site.

Self-employment

Self-employment is where there is a contract for services as opposed to a contract of service, as defined in HMRC Factsheet CIS349.

Set-off

This is money not paid to a subcontractor, by a contractor who believes there has been a breach of contract.

Statement of deduction

See entry under Payment and Deduction Statement.

Subcontractor

A person who is contracted by a contractor to* carry out construction operations* provide labour for the carrying out of construction operations* be responsible to the contractor for the carrying out of those operations.

T

Tax Treatment Qualifying Tests (TTQT)

Compliance test run annually on all subcontractors to determine whether they retain gross payment status or revert to net payment status because of compliance failures.

U

Unmatched Verification

This occurs where it has not been possible to verify a subcontractor, usually because they have failed to register as a subcontractor with HMRC. An unmatched verification will result in deductions at the higher rate being made from the contractor's payments to the subcontractor until such time as the subcontractor has registered with HMRC. See Verification.

Unique Taxpayer Reference (UTR)

A reference allocated to any individual registering to pay income tax under Self Assessment.

V

Verification

The process by which a subcontractor's tax treatment by a contractor is determined. A contractor 'verifies' a subcontractor with HMRC (ie checks that they are registered and what tax they should be paying - higher rate of 30 per cent if they are not registered, 20 per cent if they are registered to receive payment with tax deducted or gross pay if they are registered as qualifying for gross payment status.)

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HMRC Compliance

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