Claiming a Tax Refund under the Construction Industry Scheme
What is CIS?
The Construction Industry Scheme (CIS) is a government scheme that obliges contractors to deduct money from a subcontractors payment as advance payments for subcontractors tax and National Insurance Contributions (NIC). Contractors are required to register for the scheme, but subcontractors have the flexibility of choice and may want to register for the CIS themselves as registered workers receive payments at a 20% tax rate, whereas unregistered subcontractors will be taxed at 30%. It is also possible to apply for gross payment status.
The scheme covers a broad range of what is usually considered building or engineering work. Work covering demolition, repairs, decorating, and installations are just a few examples of what qualifies towards the CIS. You may want to keep in mind that services carried out directly to a homeowner will not qualify for CIS.
Claiming a tax refund
You can claim a refund if you are on a low income and you have had a deductible under CIS, as a result of the trade expenses and available personal allowances. However, do note that HMRC requires evidence to prove your claim. You must make sure that your expenses were done wholly and exclusively for your business as those are the qualifying aspects that decide whether your incurred expenses can be subject to a tax refund.
If you are working under the CIS you need to file a Self-Assessment tax return, which will need to include your total income from sales. This is not your payment after deductibles but how much you were invoiced from your contractor. This includes the cost of materials and tools. The amount of tax deducted under CIS should also be included in your tax return so that when your NIC and tax is calculated, so CIS deductions will already be taken into account. Consider this example:
A registered CIS subcontractor, Matt, was invoiced the following during the 2021/22 tax year:
Description |
Amount (£) |
| Labour | 20,000 |
| Materials | 1,500 |
| Tools | 1,000 |
Matt was then paid the following amount in the same tax year:
Description |
Amount (£) |
| Labour | 16,000 |
| Materials | 1,500 |
| Tools | 1,000 |
As Matt is registered, he is taxed at the 20% rate of his gross income meaning his contractor is obliged to hold (£20,000 x 20% = £4,000). So he is paid £16,000 for his Labour but cannot have deductibles applied on the cost of his materials and tools.
There is one instance where you do not need to file a Self-Assessment; if you are eligible for full trading allowance relief (i.e., your total trading income before any employment/casual/miscellaneous income is less than £1,000 in a tax year) and you did not claim a SEISS grant.
Money received from a SEISS grant must be recorded in your tax return as taxable income. SEISS grants are paid in gross, thus will not have a tax deduction applied on it upon receiving even if you are registered for CIS. Continuing the example used earlier, we can see that Matt will include the following information in his tax return if he has a SEISS grant:
Description |
Amount (£) |
| Turnover (fees, sales, money earnt) | 22,500 (20,000 + 1,500 + 1,000) |
| Total allowable expenses (Assume Matt has other expenses of £4,000 as well as expense for tools & materials) | 6,500 (4,000 + 1,500 + 1,000) |
| Net profit | 16,000 (22,500 – 6,500) |
| SEISS grant | 2,500 |
| Deductions on payment and from contractors | 4,000 |
As a result, Matts tax and NIC is calculated automatically for 2021/22 tax year:
Description |
Amount (£) |
| Profit from SEISS and self-employment | 18,500 (16,000 + 2,500) |
| Less Personal Allowance (for 2021/22) | {12,570} |
| Total Income | 5,930 |
| Total income (20%) | 1,186 |
National Insurance Contributions (NIC) |
|
| Class 2 (£3.05 x 52 weeks) | 159 |
| Class 4 ((£17,800 – £9,500) x 9%) | 747 |
| Total tax and NIC due | 2,092 |
| Less tax deducted (CIS) | {4,000} |
|
Income tax overpaid |
1,908 |
From this example, we can see that Matt is eligible for a refund as he has overpaid on tax and NIC and is something relatively common amongst CIS registered subcontractors that do not receive gross payment. This occurs as CIS deductions consider sales income and not your personal allowance and business expenses. Other contributing factors such as class 2 and 4 NIC liabilities and SEISS also play a part in your refund being less than expected.
If you have ceased work in the construction industry and your tax records are up to date, you can still claim a refund. More information on this is available in the HMRC manual at GOV.UK
For more enquiries and professional advice on this matter, feel free to contact us.
Originally posted 2021-05-18 10:22:13.