If you are self-employed, regularly work as a subcontractor and are registered as part of the Construction Industry Scheme (CIS) your tax will be taken out at the point of payment into your account by the contractor you work for and paid in advance, directly to HMRC. By submitting a Self Assessment Tax Return, HMRC will calculate whether, through your CIS payments, you have either under or overpaid tax and if you are entitled to a tax rebate.
Here we take a closer look at how self-employed subcontractors who are part of the Construction Industry Scheme (CIS) can access tax refunds and repayments, how this works for both sole traders and limited companies and how long it can take to get your money back from HMRC.
How much tax will I pay under CIS?
If a contractor hires you to do construction work for them, they will deduct tax on payment and forward this to HMRC. For subcontractors, this means paying a 20 to 30% tax rate unless you are exempt because you have gross payment status.
- This payment in advance to HMRC often means that subcontractors may be due a tax rebate or refund when they come to do their yearly accounts.
- When a subcontractor puts in an invoice, they will list materials and supplies separately to the labour costs. These materials will not be subject to tax.
Am I eligible for a CIS Tax Refund or Tax Rebate?
You are eligible for a CIS tax refund or repayment if your annual tax and National Insurance calculation show that you have overpaid through CIS payments.
For sole traders who complete a self-assessment, the process of claiming a CIS repayment can be relatively straight forward. Here are the key points to remember:
- The annual deadline for submitting your tax return is the 31st January.
- You should include details of all your normal and subcontracted work along with your expenses and HMRC will calculate your tax and National Insurance.
- If you are eligible for a CIS tax rebate this will automatically be paid back to you.
Whether doing it yourself or via an accountant, you submit your self-assessment tax return using the government portal.
How long does a CIS refund take?
If you are a sole trader and you are eligible for a CIS tax rebate, in general, your tax rebate should be processed by HMRC in between 1 to 8 weeks. Typically, we see our clients being paid their CIS tax rebates within 10 days of submitting their Self Assessment Tax Return.
For limited companies, the length of time it takes to process a refund directly with HMRC can depend on individual circumstances. HMRC states that they will process within 40 working days but the length of time can vary between one to eight weeks depending on the time of year.
How do CIS payments work?
CIS applies to sole traders, companies and partnerships that are carrying out construction work. Contractors must register for the scheme and subcontractors are also strongly advised to do so.
Once payment for any work a subcontractor undertakes, the contractor will calculate the tax to be paid to HMRC on the following basis:
- If the subcontractor is a member of CIS, the tax rate will be 20%.
- If the subcontractor is not registered with CIS, the tax rate is 30%.
- Some subcontractors are eligible for an exemption if they are given gross payment status.
The tax applied by the contractor does not take into account other earnings outside of the contract or the final return for an individual or company that is acting as a subcontractor. Whether you are eligible for a CIS tax refund will depend on your final self-assessment tax return.
How do I claim my CIS tax rebate?
Self-employed subcontractors who complete a self-assessment tax return before the end of January need to do very little when it comes to their CIS repayment (if one is due). If you are registered with CIS, you simply need to complete your Self-Assessment Tax Return form and on this return, you need to declare all your self-employed income and expenses, along with any tax you have had deducted under the CIS scheme.
The HMRC will then calculate if any refund is to be made and pay this back into your account some weeks later.
If you are using a tax agent or accountant they will submit your return on your behalf and any repayment will be made direct to them.
Can I offset CIS against Corporation Tax?
Limited companies have some other options to offset their CIS tax liability. They can have the amount owed paid into their bank account, offset against VAT or they can have their relief offset against corporation tax.
Offsetting against corporation tax needs to be done after the tax year deadline of 5th April. Doing it before this can lead to delays and mistakes in processing your claim.
The offset request needs to be sent by post to:
National Insurance Contributions and Employer Office
HM Revenue & Customs
You will need to include your company name, PAYE number and the amount to be reclaimed. You should state ‘offset CIS repayment against corporation tax’ and note which accounting period you want it to apply to. You also need to include your UTR or Unique Tax Reference.
What records do I need to keep for a CIS Refund?
Whether you are a limited company, partnership or self-employed subcontractor, it is advised you keep comprehensive and detailed records for your business including all invoices and statements.
- As a sub-contractor keep hold of your payslips as this will detail how much you have paid each month under CIS
- As a contractor, ensure you retain the details of payments made to subcontractors
Understanding and managing your tax and accounts can be challenging. By using the services of a qualified accountant or tax agent, you can be confident they will take the information you give and keep a comprehensive file that lists the full details of the payments and the deductions you qualify for. A tax specialist can keep track of all of this information and even offer guidance and advice on the CIS tax process throughout the year.