Tax can be hard to understand if it’s your first time working self-employed within the construction industry. CIS (Construction Industry Scheme) tax should be paid to HMRC if you’re working in the building or construction trade.
CIS is designed to increase revenue collected from individuals operating in construction. The tax paid through CIS counts as advanced payments towards both National Insurance and subcontractors tax. It’s vital that contractors register for the scheme. To find out more about our guide to CIS tax, read on.
What is the Construction Industry Scheme?
What is the Construction Industry Scheme? The Construction Industry Scheme, commonly known as CIS, is a scheme that applies directly to individuals working in the construction industry, but not as an employee. If you are self-employed within the industry, you’ll be expected to pay CIS tax.
Rules of CIS mean that the main contractor is able to withhold tax from payments to you – either 20% if you’re registered to the scheme or 30% if you are not. It’s important to understand that you might still receive documents such as payslips, but this doesn’t make you a direct employee.
CIS was set up by HMRC. CIS is an easy way to collect income tax throughout the year from construction workers. HMRC make it clear within their CIS manual details what type of work is included within the Construction Industry Scheme.
Work in demolition, repairs, decorating and site clearing are all examples of work noted within the manual that can be classified under CIS.
You don’t have to register to CIS if your work consists of jobs such as carpet fitting, delivering materials, running facilities such as a canteen, scaffolding hire, architecture and surveying.
Claiming a CIS Tax Refund
It’s not uncommon for subcontractors to end up overpaying taxes and National Insurance – almost ⅓ of UK-based construction workers pay too much tax, equating to £80 million lost per year.
How you claim a tax refund under CIS depends on whether you’re registered to the system as a sole trader or a limited company. Self Assessment tax returns must be sent in by sole traders and partners to HMRC.
It’s essential that Self Assessment tax returns are filled in correctly – they must outline the full amount of money on the invoices as income, as well as the CIS deductions field.
Once this is complete, the tax agency go ahead and works out your tax and National Insurance bill, later subtracting any deductions that a contractor has made.
Rest assured, if you’re due a CIS tax refund, HMRC will pay you back. For those operating limited companies, it’s vital that you complete a Corporation Tax return and declare all your income. Any CIS deductions made during this time are to be paid back through the company’s payroll scheme.
Having your expenses to hand as well as a quarterly PAYE or monthly bill is useful when it comes to getting a CIS refund. It’s easy to keep your own records or use the form CIS132 which is found in GOV.UK – unless you have a reliable accountant to do so for you.
How LJS Accounting Can Help
LJS Accounting Services have been trusted for over a decade, providing specialist services to loyal customers. Our experience and knowledge have been acknowledged within the industry, allowing us to be awarded ‘Accountancy Firm of The Year’ in 2020.
We’re dedicated and ambitious about accountancy and it shows through our work. Offering our services to an array of sectors, we’re able to directly work with those working in the construction industry.
Our bespoke services are delivered at the highest quality by a team of friendly professionals who remain on hand at all times to answer any ongoing questions or concerns.
If you’re in need of a reliable, hard-working accountant to manage your accounts and guide you through the financial side of your business, contact us today.
We provide expert advice and aim to take care of the more tedious side of finances, allowing you to spend more time doing what you love.
To speak directly with a member of our team, feel free to call us on 0151 601 0000. Alternatively, you can email us at info@ljsaccountingservices.com. We look forward to hearing from you.
Keli Evans, Director at LJS Accounting Services, excels in taxation and statutory accounts. With a focus on strong client relationships, she leads a diverse portfolio, overseeing vital financial aspects like VAT, payroll, pensions, and taxation with a holistic and committed approach.
