CIS - tax refunds for construction workers

Construction Industry Scheme (CIS): How to Claim a Tax Refund

CIS - tax refunds for construction workersIt’s now time to start the process of claiming your tax refund if you are a subcontractor working within the construction industry and have been paying tax, in advance, through the Construction Industry Scheme (‘CIS’). In this article we will tell you how you qualify and how to claim your tax refund. First, though, a little bit of background to the scheme:

The CIS Scheme

The Construction Industry Scheme, or CIS, is a scheme whereby a contractor in the construction industry usually deducts a proportion of the money due to their subcontractor, at source. The deducted amount is then passed direct to HMRC and counts towards the subcontractor’s tax and National Insurance, the tax element effectively being paid in advance. The exact proportion deducted depends on whether the subcontractor concerned has registered under the CIS system. If the subcontractor has not registered, the deduction will usually be made at a rate of 30%. If they have already registered, then the deduction will usually be made at a rate of 20%. Either way, by the financial year end, the amount of tax deducted at source will usually end up being more than they really needed to have paid, simply because it won’t have factored in the personal allowance which every UK taxpayer is entitled to (most UK citizens can earn up to £10,000 before paying tax at time of writing, this figure being set to rise to £10,600 in the tax year 2015-16, 10,800 a year later then increasing to £11,000 by 2017-18 following the recent budget proposals). Hence, many subcontractors in the construction industry will be due a tax refund because of the overpayment. The good news is that the time to apply for the refund is pretty much now, so get in touch if you’d like our help claiming.

What kind of work does CIS cover?

You qualify to be in the CIS system if you are a subcontractor who supplies construction work to buildings. This includes labouring, decorating, site preparation and refurbishment but excludes things like architecture, surveying services, the hire of scaffolding without labour, the fitting of carpets, the delivery of materials, and finally non-construction type services such as site facilities (canteens etc.).

What if your business is not in the UK?

Even if your business is abroad, the same rules apply if you work as a subcontractor within the UK. However there are some slightly different rules regarding the treatment of taxation for non-resident workers from countries which have ‘Double Taxation’ treaties with the UK (we can, of course, also help with that — just get in contact).

Registering for CIS

If you haven’t already registered for CIS as a sub-contractor, Taxfile can help to do this for you. You’ll need to be registered for Self Assessment (we can also help with this) and this will give you your UTR (unique taxpayer reference) number. We’ll also need your name, National Insurance number, your legal business/trading name and contact details. Once registered with CIS one of the immediate benefits will be that you’ll then have tax deductions made at the 20% rate rather than at 30%, which would otherwise be the case. If your business is a legal partnership you will also need to register it for CIS but this would need to be done in addition to being registered as an individual or sole trader. Of course, Taxfile can help with that too. Once you have been registered with CIS and have passed certain eligibility criteria, it is also possible to apply for ‘gross payment status’ meaning that you’ll then be paid by the contractor without the usual ‘at source’ deductions. Instead you’ll need to pay any outstanding tax and National Insurance at the financial year end; however HMRC will review your business each year to check that you still qualify for this status (paying tax late and/or submitting returns late would put your gross payment status at risk).

Offsetting Expenses against your tax

Taxfile can also help you to offset certain expenses against your subcontractor income. This means that any tax refund will be larger — or any tax outstanding will be lower. We can offset Read more

George Osborne

Highlights from the Chancellor’s Budget, 18 March 2015

Along with some encouraging news about the UK economy, some interesting new measures were announced in the Chancellor’s Budget yesterday and below we highlight those which we feel will directly impact the majority of UK taxpayers:

  • As widely forecast, the tax-free allowance will increase. The amount people can earn before paying tax will rise to £10,800 from 2016-17 and then to £11,000 from 2017-18. At the same points in time, higher earners will also receive a two stage increase to the threshold at which they start to pay a 40% rate of tax, with the threshold increasing to £43,300 by 2017-18.
  • The Chancellor also announced a brand new Personal Savings Allowance whereby the first £1,000 of interest (£500 for higher rate taxpayers) will be tax tree. This new allowance will kick in from April 2016 and will take 95% of taxpayers out of savings tax completely. (Fact Sheet available here).
  • Another new scheme announced was the introduction of a new ‘Help to Buy ISA’ aimed at prospective first time buyers. This fairly generous scheme means that the Government will chip in up to £50 extra per month (up to a ceiling of £3,000) when an eligible saver saves up to £200 per month towards their first home. (Fact Sheet available here).
  • In another ISA reform, savers will now be able to withdraw money from a new Flexible ISA and deposit it back later in the same financial year without losing any of their usual ISA tax benefits. £15,240 will be able to be put into this re-styled savings vehicle. Read more