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

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If you’re a sub-contractor working in the UK construction industry, the first thing you should do is register for CIS (the Construction Industry Scheme). This gives you your own unique tax reference and you effectively become self-employed from a tax standpoint. Taxfile can help set you up on the CIS system (we charge just £36 + VAT for this at time of writing).

Once enrolled, any earnings will automatically be taxed, at source, at 20%. However, with the personal allowance being set at around £10,600 per annum in most cases, this means that many subbies will have overpaid tax and will be due a refund at the end of the tax year. Taxfile are experts at recovering this type of tax for construction workers. We can analyse income, offset any applicable expenditure and allowances, work out the correct National Insurance and income tax, then submit an accurate tax return. 9 out of 10 subbies using Taxfile receive a tax refund within 3 to 4 weeks, many of those receiving in excess of £1000. Taxfile do more than 500 of these annually and Read more

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Types of CIS cards in the Construction Industry Scheme

There are five types of registration cards and certificates used in the Construction Industry Scheme:

CIS 4(P) is the permanent registration card issued to most subcontractors. It entitles the holder to be paid with a deduction on account of tax and National Insurance contributions. It does not have an expiry date but it shows the photograph and signature of the authorised holder, along with their National Insurance number.

CIS 4(T) is the temporary registration card issued to subcontractors who do not hold or do not know their National Insurance number. It enables the holder to be paid with a deduction on account of tax and National Insurance contributions while they obtain a valid National Insurance number.

CIS 6 is the subcontractor certificate issued to individuals, partners in firms and directors of most companies that meet the required turnover, business and compliance requirements. The certificate shows the photograph and signature of the holder and entitles them to be paid gross.

CIS 5 is the subcontractor certificate issued to companies that can’t be issued with a CIS 6. There is no photograph on the certificate but it bears the company secretary’s signature. It entitles the subcontracting company to be paid gross.

CIS 5 (Partner) is the subcontractor certificate issued to one partner in business partnerships that can’t be issued with a CIS 6. There is no photograph on the certificate but it bears the signature of the partner nominated to hold the certificate by the firm. It entitles the partnership to be paid gross.

Sometimes a subcontractor’s payment status will change from payment under deduction to gross payment. If this happens, the Tax Office will tell the subcontractor and any contractors who have verified or used the subcontractor in the current or previous two tax years. The revised payment status should then be applied to all subsequent payments to the subcontractor as soon as it is practical for the contractor to do so.

Subcontractors who meet certain qualifying conditions get the tax certificates and those who do not get the registration cards.

Only a minority of subcontractors will qualify for a Tax Certificate which then entitles them to gross payments. To qualify you must pass three tests; the turnover test, the business test and the compliance test.

  1. The turnover test
    To meet the turnover test as an individual you must show that for a continuous three year period you have had a net turnover of £30,000 a year or more.
  2. The business test
    You need to be in a business that provides labour to carry out construction work, conduct your business primarily through a bank account and also keep proper business records.
  3. The compliance test
    Tax affairs must be kept up-to date during the three years before application. You need to show you have paid all tax, including any PAYE and subcontractor deductions and submitted all tax returns on time.

If you qualify, you should receive your certificate within 30 days of application; if not you will automatically be sent a registration card. If you do get a subcontractor’s tax certificate it will be one of three types; either a CIS6, which is the most common type, a CIS5 which is issued to some companies because of their size, or a CIS5 (Partner) which is again issued to firms which have complex operations or geographical spread. Only the CIS6 shows the authorised user’s photograph and signature.

If you need further information about types of registration cards and CIS tax certificates, Taxfile’s tax accountants in South London, Battersea, Devon, Yorkshire or Carlisle can help you with your registration.

Call 0208 761 8000 or learn more about our tax and accountancy services for CIS contractors and subcontractors in the construction industry here.