CIS (short for “the Construction Industry Scheme“) was set up by HMRC to collect income tax throughout the year from people working in the construction industry.
Construction companies deduct tax on behalf of their workers (subcontractors) and send the money to HMRC as tax payments:
- 20% for workers who have registered themselves as subcontractors with HMRC
- 30% for those who have not
Note that CIS only applies if you work in construction as a subcontractor and you have registered for CIS – here is how you do it.
How do I register for CIS?
The process to register for CIS requires you to provide HRMC with different information, specifically:
- your legal business name or trading name if it differs from your business name
- your National Insurance Number
- your VAT registration number (only if you’re VAT registered)
- your UTR (Unique Taxpayer Reference) number
Read more about UTR number for CIS workers here.
Do I pay tax? And how do I pay tax?
Following CIS, construction companies are required to send HMRC tax deductions on behalf of their workers (subcontractors) equal to 20% of their income. For this reason, all your tax should be covered by these deductions.
For example, Best Brickworks Ltd hires Tommy Jones on their site as a subcontractor. Every month Tommy is owed £1,500 pounds for his work.
- Every month the company pays £300 (20% of the £1,500) to HMRC as Tommy's taxes
- The company sends a CIS statement or payslip to Tommy as proof
- The company pays the remaining £1,200 to Tommy as payment for his work
However, note that as a sole trader (you run your own business as an individual, your personal and commercial incomes are considered one and the same), you're still required to fill out a self-assessment tax return at the end of the year to claim any tax rebate. You can read more on how to complete your self-assessment tax return in this Earnr article.
What can I expense as a CIS worker?
As a contractor or subcontractor working on CIS, you’ll have various running costs depending on the work you do. You can deduct these costs from your taxable profit as long as they’re eligible expenses. This means things that you paid out of pocket that you need for work.
So if you earn £50,000 and you claim £9,000 in expenses, you’d only be taxed on £41,000 for the year.
Note that if your expenses are under £1,000, you can claim the tax-free trading allowance, meaning that you don’t need to keep your receipts, but you won’t be entitled to claim any expenses.
You can read more on what the Government considers expenses here.
Being a construction worker, you might expense things like:
- Cost of traveling to and from sites, such as fuel if you use your own vehicle or public transport costs
- Vehicle costs, comprehending its maintenance
- Parking fees
- Meals and accommodations (if you’re working away from home and need to stop overnight)
- Any equipment you purchased by you, for example, safety equipment and protecting clothing.
- Use of your home as an office base, meaning bills, phone usage, postage, etc
- Public liability insurance
- Accountancy fees
Be aware that if you use the same vehicle for your own personal use then you’ll need to factor this in when any expenses are claimed. If you work out that you use your vehicle 40% of the time for personal use, then you would need to reduce any relevant vehicle running expenses by 40%. The same happens if you use your home as an office base, you should calculate which portion of your bills or phone usage can be counted as running expenses.
How can I claim a CIS tax rebate?
If you’re a CIS worker, you have likely overpaid your tax bill throughout the year. For this reason, you're entitled to receive a tax rebate after submitting your self-assessment tax return.
In the example above, Tommy's annual income was £18,000 (£1,500 * 12).
Tommy technically owes HMRC £2,370.20 (£1,230 Income tax + £1,015 national insurance).
However, throughout the yearBest Brickworks Ltd paid £3,600 in taxes on Tommy's behalf!
Tommy is now due a refund.
The amount of money you’ll receive back mainly depends on your earnings and expenses. However, on average, construction workers claim back around £2000.
To claim a tax rebate all you need to do is completing your self-assessment, reporting the full amounts on your invoices as income and any deductions made by the contractor under the section “CIS deductions”. Then, HMRC will calculate your tax and National Insurance, deducting any advanced payments made by the contractor. If what you already paid is too much, HMRC will refund you.
How can Earnr help?
Earnr allows you to track your ingoings and outgoings over the course of the year, and automate your tax return. You mark each payment and each expense as you go so that by the time you get to do your tax return, we’ll have everything we need to do the process for you.
The good news is that Earnr can manage your tax return for you for just £99. You can download the app and make use of the our other features for free!
Check it out here.
Other CIS articles
Looking for more? Why not check out some of the other articles we've written to help you with your CIS Tax.