Construction Industry Scheme Claiming Tax Back
What is CIS?
The CIS is an HMRC programme that you may be eligible for if you operate as a contractor in the construction sector but are not an employee, such as a self-employed person. According to CIS regulations, the contractor is typically required to deduct tax from your payments at a rate of 20% if you are "registered" or 30% if you are not.
Other self-employed people who are not in the construction industry typically receive their compensation in gross amounts, meaning no taxes are withheld.
Not all individuals who operate in the construction sector are independent contractors. Everyone should think about their employment status while they work in the construction sector.
It's crucial to understand that even while a contractor may deduct tax from your payments and you could receive paperwork that looks a lot like a paystub, you are not being recognised as an employee and will not have access to any of the employment benefits that often come with being an employee.
The CIS includes work in demolition, site clearing, repairs and decorating, and installing electricity systems, in addition to what you might commonly think of as building and civil engineering work. What type of job is covered by the Construction Industry Scheme is specified in the HMRC CIS manual.
It should be noted that if you provide services of the type used in the construction sector directly to a homeowner (rather than to a contractor), this would not be covered by the CIS and the client would pay you gross upon presentation of your invoice.
Whether you register as a subcontractor under the CIS will determine how much tax the contractor is required to deduct.
Do all workers in the Construction Industry automatically pay tax under CIS?
Contractors are required to determine whether their employees are employed or self-employed.
Self-employment is a matter of reality, not choice, although if most contractors would undoubtedly prefer to hire workers on a self-employed basis (since this means less expense, obligations, paperwork, etc. for them).
Even if the work arrangement is only for a very short time, if the person has an existing Unique Taxpayer Reference (UTR), if they supply their own small tools, or if they work exclusively for one contractor without the risks of running a business, they are likely to be an employee rather than self-employed. According to the Pay As You Earn system, the contractor must deduct income tax (as well as National Insurance contributions) from your pay if you are considered the contractor's employee.
When will a refund be due?
Because of the trade expenses and the fact that you typically have personal allowances available, a refund will typically occur when tax is deducted under CIS and you have a reduced income.
It is generally accepted that all expenses must be directly and solely related to your work.
It is important to keep this in mind because, should HMRC decide to audit your tax return, they might ask you for proof that, first, you actually incurred an expense and, second, that expense was used solely and exclusively for your business.
How do I get the refund?
You must submit a Self Assessment tax return if you are employed by the CIS, and part of this process includes reconciling your refund.
At Cheylesmore Chartered Accountants we will take the stress out of the Self Assessment Tax Return.
