Can I Pay a Subcontractor Without a UTR Number?

Hiring subcontractors can be a beneficial arrangement for businesses, as subcontracting can reduce the risk associated with hiring staff and bring in experts for a particular task. However, it’s crucial to understand the legal and financial obligations that come with it. 

One important aspect is the Unique Taxpayer Reference (UTR) number, which serves as an identifier for taxpayers in the United Kingdom. In this guide, we will address common questions surrounding paying subcontractors without a UTR number and provide insights into the implications involved.

But before we get into that detail it is important to establish what a subcontractor is from HMRC’s point of view, your subcontractor might not be a subcontractor at all. 

We have seen many instances of companies registering under CIS (Construction Industry Scheme) that have nothing to do with the construction industry and thus a UTR number should be of no consequence to them.

You can find a comprehensive list of what is included or excluded from CIS on HMRC’s website. Here’s what HMRC have to say on the matter in the Construction Industry Scheme Manual:

A subcontractor is any business which has agreed to carry out construction operations for another business or body which is a contractor or deemed contractor – whether by doing the operations itself, or by having them done by its own subcontractors or employees, or in any other way. Subcontractors include concerns normally known as main contractors, where they are engaged by a client who is a contractor, for example, a local authority.

The term ‘subcontractor’ includes:

• a company, including any corporate body or public body, as well as any individual self-employed person(s) running a business or partnership.
• a labour agency or staff bureau which contracts either to get work done with its own workforce, or to supply workers to a contractor.
• a foreign business if the construction operations for which it is being paid take place in the United Kingdom or within United Kingdom territorial waters (up to the 12 mile limit)
• a local authority (and its Direct Service or Labour Organisation) or public body (or its subsidiaries) if they are engaged on construction operations for someone else (see CISR13040 for the list of Public Bodies affected)
• a gang-leader who agrees with a contractor on the work to be done, and in turn receives payment for the work of the gang.

Can I Pay a Subcontractor Without a UTR Number?

So, now we have cleared up the matter on who is a subcontractor let’s concentrate on the matter in hand ‘can I pay a subcontractor without a UTR number?’ here’s the simple answer: 

Before you can pay a new subcontractor, you’ll need to ‘verify’ them with HMRC. You must also verify subcontractors you’ve used before if you have not included them on a CIS return in the current or last 2 tax years. You need the subcontractor’s UTR to be able to ‘verify’ them with HMRC so you shouldn’t pay them without a UTR number. 

So, the short answer is no you should not pay a subcontractor without a UTR number. While it is technically possible to pay someone without a UTR number, it is not recommended. 

As a responsible contractor, it is crucial to ensure that all subcontractors have a UTR number and are registered for self-assessment. We have covered various scenarios below to help you understand what to do when paying subcontractors.

What If a Subcontractor Does Not Have a UTR Number?

If a subcontractor does not have a UTR number, it is essential to address the issue promptly. The subcontractor should obtain a UTR number by registering with HM Revenue and Customs (HMRC) for self-assessment. 

As a contractor, you should request proof of their UTR number before initiating any payment transactions to ensure compliance with tax regulations.

When you pay a subcontractor, you usually make deductions from their payments. HMRC will tell you how much to deduct from a subcontractor which is linked to the UTR number so without it you will not know the correct level of deduction.

The Construction Industry Scheme (CIS) deduction rates are:

• 20% for registered subcontractors
• 30% for unregistered subcontractors
• 0% if the subcontractor has ‘gross payment’ status – for example they do not have deductions made

You must pay these deductions to HMRC – they count as advance payments towards the subcontractor’s tax and National Insurance bill.

Can You Verify a Subcontractor Without a UTR Number?

Verifying a subcontractor’s tax status without a UTR number can be challenging. The UTR number serves as a unique identifier and allows HMRC to track an individual or business’s tax obligations. Without a UTR number, it becomes difficult to verify a subcontractor’s tax compliance and ensure that payments are being made correctly.

Is It Illegal to Work Without a UTR?

Working as a subcontractor without a UTR number is not illegal per se, but it is important to distinguish between legal work and compliant tax practices. The UTR number is necessary for tax purposes and ensures that the correct taxes are paid. Failing to register for a UTR number and fulfil tax obligations can lead to penalties and legal consequences.

Can I Pay a Contractor Without a UTR Number?

In the UK, it is generally not advisable to pay a subcontractor without a UTR number. The UTR number is crucial for tax compliance and paying a subcontractor without one can lead to legal and financial consequences. It’s important to ensure that all subcontractors have a valid UTR number before making any payments.

If you do make a payment we would highly recommend doing so using the 30% for unregistered subcontractors rate to ensure you take the maximum deduction possible until you can verify the subcontractor.

When filing your monthly CIS returns you may struggle to submit the correct returns if you have paid subcontractors without a UTR.

FAQs on paying a subcontractor without a UTR number?

Can I Pay Someone Without a UTR Number?

While it is technically possible to pay someone without a UTR number, it is not recommended. As a responsible contractor, it is crucial to ensure that all subcontractors have a UTR number and are registered for self-assessment. Paying subcontractors without a UTR number can result in non-compliance with tax regulations and potential legal repercussions.

How Long Can You Work Without a UTR Number?

There is no specific time limit for working without a UTR number, but it is important to understand that the UTR number is required for accurate tax reporting and compliance. It is advisable to register for a UTR number and fulfil tax obligations as soon as possible after starting work as a subcontractor.

Paying Subcontractors Directly

When paying subcontractors, it is important to follow the legal requirements and comply with tax regulations. Direct payments to subcontractors should only be made after verifying their UTR numbers and ensuring that they are registered for self-assessment. This helps maintain transparency, accountability, and compliance in financial transactions. 

Is a UTR Number the Same as a CIS Number?

No, a UTR number is different from a Construction Industry Scheme (CIS) number. A UTR number is a unique identifier for taxpayers, while a CIS number is specific to the construction industry and is used to manage deductions for subcontractors. Both numbers serve different purposes and may be required depending on the nature of the work and the relevant regulations.

Registering as a Subcontractor

To operate as a subcontractor in the UK, it is necessary to register with HMRC for self-assessment and obtain a UTR number. Registering as a subcontractor ensures that you fulfil your tax obligations and allows you to receive payments from contractors legally. It’s important to follow the registration process outlined by HMRC to ensure compliance and avoid any potential penalties or legal issues.

Conclusion

Paying a subcontractor without a UTR number is not recommended due to the legal and financial implications involved. The UTR number serves as a crucial identifier for tax purposes, and complying with tax regulations is essential for both contractors and subcontractors. It is advisable to ensure that all subcontractors have obtained a valid UTR number and are registered for self-assessment before making any payments.

By following the necessary procedures and seeking professional advice if needed, you can maintain compliance, avoid penalties, and foster a transparent and compliant working relationship with your subcontractors.