HMRC uses the Construction Industry Scheme (CIS tax returns) to collect income tax from subcontractors in the construction industry. According to the CIS rules, the contractor is normally required to withhold tax on its payments to you, at 20% if you are ‘registered’ or 30% if you are not.
The CIS encompasses more than just building and civil engineering work; it also involves demolition, site clearance, repairs and decoration, and power system installation. The HMRC CIS document explains exactly what work is covered by the Construction Industry Scheme.
REGISTERING FOR THE CIS SCHEME
If you receive income where tax has been deducted under the CIS scheme, you must register as a subcontractor. You’ll need your business or trading name, your National Insurance number, your unique taxpayer reference number, and, if applicable, your VAT registration number.
CIS covers the majority of the work you’ll do as a subcontractor. However, there are a few exceptions if you exclusively do certain jobs. These include carpet fitting, architectural and surveying, as well as being based on a construction site but not performing construction-related tasks, such as site facilities. Not sure if your contract is exempt? This guide from HMRC discusses the topic in detail. Feel free to get in touch with us to clarify if you have any doubts.
What costs can my CIS tax rebate cover?
When you’ve spent your own money just to accomplish your job, a CIS tax return can put money back in your pocket. It’s accomplished by lowering the amount of your taxable income. These expenses may include:
- Travel expenses, which can be incurred either through mileage expenses in your own vehicle or through the use of public transportation.
- Meals while at work or on the road.
- Accommodation if you need to stop for the night while travelling.
- Parking fees and tolls you have to pay.
- Maintenance and replacement of any necessary tools or protective equipment.
- Public liability insurance and professional bodies fees, if applicable to your work.
- Home office expenses such as phone calls, postage, and stationery.
When will a refund be due?
Where you have a lesser income and tax deduction is under CIS. A refund is usually possible due to trade expenditures and the availability of personal allowances. The usual rule is that any expenses must be entirely and solely related to your work.
It is important to remember this because HMRC may ask you to submit evidence. First, to ensure you actually incurred an expense and, second, the expense was entirely and solely for your business. You should not make them up or include private expenses solely to minimise your taxable profits and get a higher refund. This is unlawful and punishable by hefty fines.
How do I get the cis tax refunds?
In case you work under the CIS. You have to file for a Self Assessment tax return. If you are eligible for a tax refund, you will receive it as part of this process.
Feel free to drop a mail for any clarifications, and we’ll be more than happy to answer your question.
What happens if I miss the deadline?
If you miss the CIS tax returns deadline, you will automatically incur a fine from HMRC. You will incur the following penalties based on the duration of the delay.
- 1 day late —> £100
- 2 months late —> £200
- 6 months late —> £300 or 5% of the CIS deductions on the return, whichever is higher
- 12 months late —> £300 or 5% of the CIS deductions on the return, whichever is higher
Returns later than this may result in an extra penalty of up to £3,000 or 100% of the CIS deductions on the return, whichever is greater.
What if you disagree with a penalty decision?
If you wish to appeal against a penalty,
You have 30 days from the date of the penalty notice to file an appeal for a cis tax return:
- using HMRC’s online service
- Or you can write to HMRC by including your Unique Taxpayer Reference (UTR) and the payment reference shown on the notice.