If you’re new to contracting or sub-contracting in the construction or building industry, the HMRC CIS scheme can be a bit confusing to get your head around. But don’t worry, we’ve got you covered! Keep reading to find out everything from what the HMRC construction industry scheme is, to what’s covered by it.
What is the HMRC CIS scheme?
The HMRC CIS scheme was first introduced in a bid to stop cash-in-hand labour. This was a big issue in construction and resulted in a lot of individuals skipping out on paying their taxes. With this scheme, the contractor will make the relevant tax deductions from their sub-contractors pay and send it along to HMRC. Then when the sub-contractor does their annual tax return, they can claim the deductions back and use it for advance payments for their tax and national insurance.
The HMRC Construction Industry Scheme isn’t a perfect system though and often, it’s commonly found that a sub-contractor will have had more tax deducted than needed, and therefore they’ll be due a CIS tax refund. This is largely due to the fact that the deductions don’t factor in personal allowances.
Who needs to register?
If you’re a contractor you’ll need to register for a CIS tax return before you take on your first sub-contractor. Sub-contractors on the other hand, don’t have to register, but if you don’t, you’ll get taxed at a higher rate. The rate for unregistered sub-contractors is 30%, where registered individuals will be taxed at the standard rate of 20%.
You’ll also need to register for the HMRC CIS scheme if your business doesn’t do construction, but it spends more than £1 million a year on construction in any 3-year period. Additionally, if you come under both contractor and sub-contractor categories, you’ll need to register for each.
What comes under the HMRC CIS scheme?
All construction work to both permanent and temporary buildings, plus any civil engineering work (roads and bridges), falls under the scheme. It also includes the following:
- Any preparations such as laying foundations
- Demolition
- Building
- Alterations, repairs and decorating
- Installations such as light fittings
- Any cleaning after building work
What’s exempt from the scheme?
There are certain industries that won’t need to register for a CIS tax return, such as:
- Architecture
- Surveying
- Scaffolding hire (without labour)
- Carpet fitting
- Delivering construction materials
- Making construction materials
- Providing services on a construction site that aren’t related to construction (such as running a canteen)
Is there any way to avoid these deductions?
If you’re a sub-contractor and want to avoid deductions and get paid in full, you’ll need to apply for gross payment status. By doing this, you’ll need to pay all your tax and national insurance at the end of the year via either a self-assessment tax return if you’re a sole trader or self-employed, or a corporation tax return if you’re a limited company.
In order to qualify for gross payment status, you’ll need to meet the following criteria:
- A proven track record of paying tax and national insurance on time
- Your business must be in the construction industry or provide labour for it in the UK
- Your business must be run through a bank account
- Turnover for the past 12 months will be evaluated (minus VAT and material costs)
- For sole traders, turnover must be at least £30,000 per annum
- For partnerships, turnover must be at least £30,000 per annum for each partner or £100,000 or more for the whole partnership
- For directors, turnover must be at least £30,000 for each director or £100,000 or more for the whole company
How to apply for a CIS tax refund
You can only apply for your CIS tax refund at the beginning of the new tax year, but the good news is that providing everything is done correctly, you’ll usually get your rebate this month too. To help you get the maximum possible refund, it’s a good idea to get as much information and proof as possible. At Accountancy Solutions, we recommend providing:
- Payslips and CIS statements
- Details of all the sites you’ve worked on
- MOT certificates that display mileage (you might be able to claim back fuel costs)
- Invoices/receipts for expenses
- Invoices/receipts for tools and equipment
Essentially, the more information you can provide, the better chances you have of getting a larger CIS tax refund. Make sure you include any relevant documents and receipts.
How Accountancy Solutions can help with your CIS tax refund
There’s a lot involved with a CIS tax return and potentially thousands of pounds at stake that you might not want to risk. If you want to ensure you get the most out of your claim, we can help. With Accountancy Solutions, our personal accountants have extensive knowledge of the CIS industry and will always make sure that you’re claiming for the right allowances and entitlements. We’ll make the entire process quick and accurate, so you can relax, safe in the knowledge that it’s all handled for you.
Want to take the next step and get started with your CIS tax refund? Contact us today or call us on: 01633 288299