The Construction Industry Scheme (CIS) was originally set up by the UK HMRC to streamline the way in which the construction industry paid its taxes.

Traditionally construction has been a contract-based, ad hoc workplace, and the traditional PAYE structure was not fit for purpose for the many sole traders, subcontractors, and one-man band workforce. It created a messy and unsatisfactory system that encouraged tax evasion and was costing the Exchequer hundreds of millions in lost revenue.

How it works is that the construction company and contractors are obliged to automatically deduct tax on behalf of their subcontractors and send it directly to the HMRC.

DO MAKE SURE YOU ARE REGISTERED!

If the subcontractor is registered with the HMRC, then the amount deducted is 20 percent. However, if the subcontractor is not registered, then the construction company deducts 30 percent. It is obviously financially beneficial for the subcontractor to therefore register with the Construction Industry Scheme to qualify for the lower rate of tax.

So far, so good, but by passing on the burden of tax collection to the big contractors, a whole new monster has been created in which the large contractors have to ensure they have the logistical systems in place to process this complex administrative process.

DON’T FORGET TO APPLY FOR A CIS TAX REFUND

As an individual subcontractor, it is vital that you are registered with the Construction Industry Scheme to ensure that you can benefit from it. Although the burden is on your contractor to deduct your tax, you still need to complete your annual self-assessment, and the chances are you will also be due a refund. The more you know about, and understand, the CIS system, the less likely you are to lose out financially in the long term.

DO CHECK THE PAPERWORK FROM THE CONTRACTOR

When your contractor pays you, it needs to provide you with a statement within 14 days of the end of the tax month. You are not obliged to submit these to the HMRC, but you will need to keep them as a record of payment to support your end-of-tax-year self-assessment.

Make sure that you check the payment details, and that they tally up with what you are expecting to receive.

DON’T INFLATE YOUR HOURS

You will get found out!

DO KEEP A TALLY ON DEDUCTIBLE EXPENSES

Every year, when you do your self-assessment, you are very likely to be able to claim a refund from the HMRC. The list of deductible items includes:

• Materials required specifically for each contract
• Equipment – Not the purchase of multi-use equipment, but any consumables. However, you can claim for any repairs that have to be carried out on equipment damaged as a result of the work. You can also claim for any protective clothing, gloves, helmets, etc.
• Car and van expenses – you can claim in one of two ways. Either by claiming 75 percent of the leasing payments, fuel, insurance, tax, etc. Or by simply claiming a flat rate of 45p per mile.
• Home office allowance – although it is assumed that a construction worker’s time is mainly spent on site, there may be some circumstances in which you can apply for a home office allowance. If you use your home as an office for at least 10 percent of your working week for activities such as writing contracts, preparing invoices, organising your tools, and chasing new clients, then you have a valid claim for listing it as a deductible expense.

If you are a subcontractor but work within the framework of a limited company, then the rules for you are slightly different. As a limited company, you will probably have gross payment status, having met the criteria established by HMRC, which means that CIS deductions will be offset against your corporation tax liability.

Get help if your situation is complex

As a sole trader working with few materials, then claiming your refund is quite simple. There are plenty of online CIS tax return calculators that can help you work out what your refund could be. Alternatively, you can check out your status via your individual CIS HMRC login details.

However, the more complex your business, the more support you are going to need to understand exactly what you can claim back, and what difference it will make to your refund.

Tax Refunds R Us gets their clients an average tax refund of £2500. If you think you are due a refund, then contact us now for a free evaluation.