Understand the Basics of CIS and Why You may Get a Refund
Scope of CIS scheme
(CIS) in the UK covers most construction work, including alterations, repairs, decorating, and demolition related to buildings and infrastructure. Activities like delivering materials, architecture, surveying, and some scaffolding that is not part of the construction itself are not covered.
Who needs to register under CIS scheme
It is compulsory for contractors to register under CIS scheme while for subcontractors registration is optional. However, a higher rate of CIS deduction applies to the unregistered subcontractor. A contractor can register as a subcontractor as well.
Rate of deduction under CIS Scheme
Deduction rate for CIS registered subcontractor is 20% while the rate for non registered one is 30%. If the subcontractor has a history of filing and paying taxes on time, he/she can get gross status from the HMRC and will get no deductions from hi/her payments.
Private homeowners who are hiring construction work directly (and are not acting as businesses) are not considered contractors under CIS, so CIS does not apply to payments made by them.
Determination of amount to be deducted
CIS deduction will only apply to that part of the bill or invoice which include labour, travel and subsistence. No deduction will apply to material and VAT components.
Practical example
Lets try to understand the CIS scheme working with the story of Sarah.
Sarah works in the construction industry as a carpenter, and each time she gets paid, some of her money is taken off by her contractor for this-the so-called CIS deduction. That is what contractors are supposed to do to ensure that the right amount of tax is paid.
The CIS deductions are taken as an advance payment of tax. At the end of the year, if Sarah's true liability for tax is less-perhaps she had business expenses or personal allowances-she will be able to submit a claim for a refund.
If over the year Sarah's contractor deducted £2,000 but Sarah only owes £1,200 in tax she can claim back the extra £800.
Types of CIS claim
CIS claim can be made either during the tax year or after the end of the tax year.
CIS claim for the current tax year can be made by submitting CIS40 form online or sending CIS40 form by post.
You can access both online and paper forms by clicking the links above.
Claim through CIS40 should only be made if;
- you have ceased your business mid tax year and your accounts are upto date
- you paid all tax and Class 4 National Insurance contributions due
- hold the original payment and deduction statements for the tax year
- your tax affairs are upto date
CIS refund claim by a self employed
Prepare Your Information
The main information she needs to obtain is the
- UTR,
- National Insurance Number, and
- details of her CIS deductions.
- the name and address of the contractor
- the contractor’s tax reference
- the dates of the payments or the tax months when the contractor paid
All of the above information is available in Payment and deduction statements .
If she doesn't, she should request each from her contractors. HMRC may request proof of deductions, so keep that on file, for sure!
Complete Your Self-Assessment Tax Return
That would involve her doing a Self Assessment tax return for that year of assessment to obtain the refund for that overpayment. She does this online via the website of HMRC.
Tip:
Sarah refers back to her CIS statement to check the correct amount deducted . Further, Sarah makes sure she does not miss any expenses she incurred in connection with her profession. These expenses are;
Expenses to be claimed on CIS refund claim
Tools and Equipment:
Costs of buying, repairing, or replacing tools and equipment necessary for work (e.g., saws, drills).
Materials:
Any materials used for completing jobs (e.g., wood, nails).
Protective Clothing:
Necessary workwear such as safety boots, gloves, and helmets (but not ordinary clothing).
Travel Costs:
Mileage for business-related travel (excluding commuting to a regular workplace) and other transport costs like public transport fares.
Motor Vehicle Expenses:
Maintenance, repairs, insurance, and fuel costs for a van or car used for business purposes. Alternatively, the mileage allowance can be claimed.
Subcontractor Payments:
Payments to subcontractors if they hire other workers under CIS.
Phone and Internet Costs:
Business-related usage of mobile phones or the internet.
Office/Home Office Costs:
If they have a home office, a proportion of utility bills like electricity, heating, and internet, or a flat-rate deduction based on hours worked from home.
Professional Fees and Subscriptions:
Membership fees for trade unions or professional bodies relevant to carpentry.
Insurance:
Business-related insurance, such as public liability insurance.
Training Costs:
Courses to update skills or health and safety certifications relevant to carpentry.
Advertising and Marketing:
Costs of business cards, flyers, or a website promoting their carpentry services.
For further reading on what expenses can de deducted , read or blog on allowable expenses.
File Your Tax Return
Once all relevant parts are complete, Sarah checks the information carefully. It all looks OK so she files her Self Assessment tax return . She makes sure, her bank details are provided.
If you would like to know how to file tax return, read our blog "How to File Your Self-Assessment Tax Return as a Self-Employed".
HMRC Work Out the Refund
Once Sarah has submitted her tax return, HMRC work it out. If she paid more through CIS deductions than what she owes in tax, then she is due a refund. HMRC posts a cheque or pays it directly into a bank account - whichever option was opted for by them.
Await Your Refund
She waits for her confirmation after her submission by checking her emails and letters from HMRC. This normally takes a few weeks, between 4 to 6 weeks; hence, she does not get impatient.
Contact HMRC if Needed
If she does not hear from them after 8 weeks, that would be the best time to get in touch with HMRC requesting a refund. She may contact them as follows:
Call the Self Assessment helpline on 0300 200 3210.
Use your HMRC online account.
For CIS refund, You can check HMRC app at https://www.youtube.com/watch?v=ygbB3OHf28o.
CIS refund claim by a limited company
The CIS (Construction Industry Scheme) refund process for companies in the UK typically involves the following steps:
Register for CIS Scheme:
Ensure your company is registered under the CIS scheme with HMRC to account for CIS deductions correctly.
Accurate Deduction Records:
Keep detailed records of all CIS deductions made throughout the tax year, including payments received, deductions taken, and relevant invoices.
Filing Payroll Reports:
Submit Real Time Information (RTI) returns via your payroll software to report employee payments and deductions, including any CIS deductions made from subcontractors.
Submit Tax Return:
File the company's Corporation Tax return or other relevant tax documentation at the end of the financial year. Include all CIS deductions as part of the claim.
Claiming Refunds via EPS (Employer Payment Summary):
Use an EPS to inform HMRC of the CIS deductions already suffered. Ensure this is submitted to reduce the amount of PAYE or NICs due or to request a direct refund if overpaid.
Reconciliation:
HMRC will reconcile the deductions against what is owed for PAYE, NICs, and other tax liabilities.
Follow Up:
If there are delays or discrepancies, contact HMRC’s CIS Helpline for updates or to provide further documentation.
Receive Refund or Offset:
If everything is in order, HMRC will process the refund or offset the CIS deductions against other tax liabilities.
It’s crucial to ensure timely and accurate submissions and retain all related records for compliance. For tailored advice, consult a certified accountant or directly contact HMRC.
Remember, a company has to file EPS to notify HMRC about the CIS suffered.
Useful Links with Respect to Your CIS Refund
HMRC Self Assessment Portal: https://www.gov.uk/log-in-file-self-assessment-tax-return
Overview - Construction Industry Scheme: https://www.gov.uk/what-you-must-do-as-a-cis-subcontractor
Tax facts CIS by HMRC-https://www.youtube.com/watch?v=v7mm2OABn4U
Claim a CIS refund if you're an employer: https://www.gov.uk/guidance/claim-a-refund-of-construction-industry-scheme-deductions-if-youre-a-limited-company