Simply Tax

Does the Construction Industry Scheme (CIS) apply to me?

CIS was introduced by HMRC to ensure that the correct amount of tax was being declared and collected. From all the people registered as self-employed, those in the construction industry make up the highest portion, of around 25%! That’s right… 1 in 4 people registered as self-employed with HMRC are in this industry.

The scheme is compulsory for those working in the industry. It allows the contractor (the company that you are providing your services to), to deduct some tax before they pay you. That amount is paid on your behalf to HMRC. Read here for more information on what amount of tax is deducted on your behalf.

To avoid having the highest amount deducted, you must contact HMRC and register for CIS. You can do this by clicking here (you will need your NI number and UTR number).


Do I still need to complete a self-assessment tax return if tax is deducted?

You can choose not to submit a tax return, but in almost all cases, if you go down this route, you may lose out on declaring your expenses as self-employed, and potentially claiming a refund from HMRC. Also, remember that you are self-employed, so you have an obligation to pay Class 2 and Class 4 NI contributions, if you earn above the threshold.

Let’s go through an example:

Jasper is an electrician and provides his services on a project by project basis to Dave Construction Limited, as a subcontractor. Jasper charges, on average, around £2,000 per month before any taxes are deducted.

  1. Jasper is clearly trading in the construction industry, and so must register himself to HMRC as a CIS subcontractor
  1. Before taking Jasper on, Dave Construction Limited verifies that Jasper is a registered subcontractor
  1. Every month (on average), Dave Construction Limited pays HMRC £400 (20% of £2,000) on Jasper’s behalf
  1. The company raises a CIS statement and gives it to Jasper confirming the above, and pays the remainder of £1,600 over to him
  1. When Jasper complete his tax return, he can indicate that tax of £400 was already paid to HMRC. Any additional tax or refund is dealt with within the self-assessment tax return

Why would I get a refund back from HMRC?

It’s always a nice feeling getting some money back from HMRC, but in what circumstances would this happen?

As you are registered as self-employed, you can declare your expenses against the income received from the contractor. This can be things like tools, materials, travel and insurance costs. You can find more information reading this article.

As HMRC would have received tax on the assumption there were no expenses, by declaring the expenses for the trade, you’re actually reducing the profit to declare to HMRC. In your tax return, the tax is applied to this profit. As the tax due will be lower that what you have already paid, this will result in HMRC refunding the difference back to you. Do remember that as self-employed, you will still need to pay Class 2 and Class 4 NI contributions to HMRC, which is calculated within your tax return.

Sounds confusing? Don’t fall foul of HMRC legislation!

If you need to register as self-employed and for CIS with HMRC, you must inform HMRC, register for and complete a self-assessment tax return. If not already registered to file one, you must do so immediately.

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