Your guide to making a CIS tax claim

If you’re a construction contractor or subcontractor you’ve probably heard of the Construction Industry Scheme (CIS) – and, since it has an effect on the money in your pocket – you should hopefully be aware of your right to making a CIS tax claim. CIS not the same as being paid directly by an employer, so we’ll explain what the scheme is, how it works and the steps you need to take if you think you might be due a refund!

What is the CIS?

When a subcontractor does work for a construction contractor the CIS stipulates that the contractor must make deductions from the money paid to that subcontractor. These payments count as advance payments toward that person’s tax and National Insurance.

It’s often better for a subcontractor to receive ‘gross’ payments – meaning a full payment with no deductions made. This allows the subcontractor to handle all tax and National Insurance contributions themselves – at whichever rate of tax applies to the way in which they pay themselves. However, to be eligible for gross payments a subcontractor must meet the following HMRC criteria by showing that:

  • They have paid tax and National Insurance contributions on time in the past
  • Your business does construction work (or provides labour for it) in the UK
  • Your business is run through a bank account 

Not only that, but HMRC will also look at your turnover for the 12 months prior to your claim for gross payments. They require turnover to be at least:

  • £30,000 if you’re a sole trader
  • £30,000 for each partner in a partnership, or at least £100,000 for the whole partnership
  • £30,000 for each director of a company, or at least £100,000 for the whole company

How much are the deductions?

Fortunately, the level at which deductions are taken is somewhat decided by you if you’re a subcontractor. The HMRC expects you to register as being a subcontractor – assuming you do, contractor deductions will be made at 20% – excluding VAT charged by the subcontractor and any cost of materials. If you don’t register, deductions will be made at the higher rate of 30% – again, excluding VAT charged or material costs.

It’s worth noting – even if you have register, the 30% rate will apply if you’ve failed to give the contractor you’re working for your UTR (unique tax payer reference) number – so make sure you do!

‘Registering’ doesn’t mean you have to meet the qualifying criteria for being paid gross payments – simply that the HMRC are aware you’re a construction industry subcontractor. Hence, it’s better to have registered, whether you can meet the criteria or not.

Why does CIS exist and why does it go wrong?

The government introduced the CIS scheme as they felt there were too many subcontractors avoiding paying tax – essentially breaking the law and in some cases leaving the people who paid them liable for paying too much tax themselves. While it might have felt like a victimless crime to the subcontractor who avoided paying tax – the knock-on effect was often to the person or company who had paid them.

CIS most often impacts the people who are the most well-meaning when it comes to submitting tax returns. This is because CIS payments are already taken – meaning overpayment at the point of submitting your tax return becomes more than likely. 

Am I due a refund and if so, how much?

Firstly, it’s worth noting that a high percentage of people who have been paid through CIS and have submitted their own tax-return are due a refund. Both CIS and self-assessment returns can be fairly complex, especially if you’ve worked for different contractors – so there’s a chance that mistakes or oversights can happen.

Refunds can be anywhere from a few pounds – to thousands – and either way, that money is better in your pocket than incorrectly sitting with HMRC. It’s also worth noting that refunds can take a while to come to light with HMRC – so it might be that you’re due a return of money for previous years earnings too.

How do I claim overpayments back?

You’ve got a couple of options here. If you’re a sole trader, HMRC’s guidance on the issue simply says, “If you’re due a tax refund, HMRC will pay the money back” – with no indication of timescales, how the process is started or how frequently your tax contributions will be reviewed. People often consider this leaving the whole process to chance – especially given well documented cuts and delays in HMRC services.

If you’d prefer to keep the fate of any possible refund in your own hands then it’s better to pursue HMRC, you can either do this yourself – or use a specialist CIS refund service who’ll do the legwork for you.

It’s slightly different if you’re operating as a limited company and have gross payment status. If this is the case HMRC advise that you declare your income in your Corporate Tax return as you normally would – with any CIS dedications claimed back through your company’s monthly payroll scheme. They note that if you attempt to reclaim any CIS dedications through your tax return you could face a penalty – so be careful. Give HMRC a call with all your info to hand if you or your accountant are in any doubt.

What will I need?

The key to making a claim for overpayment of tax is always to have good records. Without these HMRC will have no proof that you’re eligible for tax relief – and unfortunately, they only operate on proof – not good will!

Make sure you keep records of:

  • Every contractor you work for – including name and address.
  • Locations of work done.
  • Each contractor’s tax reference.
  • Dates of payments when a contractor paid you.

It’s not the end of the world if you don’t have this information – it can just slow things down a little. Should you find yourself without any of this – try to make sure you have it for work you do going forward.

If choose to get in touch with HMRC yourself, you’ll need to explain that you think you’re due a refund along with the reasons why. If you choose to use a company who’ll pursue the claim for you, they might take a small percentage of the rebate that you’re given – but will normally put the effort in on your behalf and have the knowledge to get things done quickly. It’s your choice – but either way is better than leaving the fate of your money to chance.

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