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Construction Workers - Don't Be CIS Losers!

Image of a toilet with five pound notes being dropped into the toilet by someones hand.

Are you missing out on thousands of pounds of over-paid tax?

Almost one third of UK’s self-employed construction workers pay too much tax, either through simple overpayments or by not claiming back for their rightful expenses. This equates to a staggering figure estimated at £80 million lost by workers each year.

With the ensuing cost-of-living crisis and skyrocketing costs, savvy construction worker are searching for ways to save money. A great place to start is keeping what is rightfully yours in the first place. Or at least making sure you claim it back.

If you’re a self-employed sole-trader status construction workers, the amount you could reclaim on average could be a very tidy sum of £1,600 per year! A tax rebate could put cash directly back into your pocket when it is most needed during the current crisis – and every year.

If you feel you’ve overpaid tax, or you don’t claim back allowances for items essential for your work, then there is no better time to register with the Construction Industry Scheme (CIS), ensure you understand your rights and get back what you’re owed. You can also call the CIS helpline for help with registering.

It’s your own money, so don’t be a CIS loser!

Know your rights and what you can claim

Your employer is obliged by law to deduct a round-sum figures from your pay, 20% if you are CIS registered or 30% if you are not.

But this will almost certainly mean you are overpaying tax as it usually does not take into account your specific personal circumstances and any additional tax allowances you may be entitled to.

You can only get these overpayments back by applying to HMRC. When you’ve overpaid tax or have spent your own money just to do your job you are entitled to this rebate.

That is, if you actually submit a claim through your annual Self-Assessment (SA) tax return.

You can do this yourself or there are accountants who will do it for you for a very reasonable fixed fee. If you need this service Just type into Google “Contractors fixed fee self assessment service” and choose carefully.

The allowances you can claim include:

  • Travel expenses, such as fuel, train, bus or taxi fares;
  • Other costs of running your own vehicle including a proportion of purchase/hire costs, maintenance costs, parking fees and road-tolls;
  • Cost of meals while you’re working or on the road;
  • Cost of accommodation if you need to stop overnight for work;
  • Upkeep and replacement of any essential tools, equipment or Personal Protective Equipment (PPE), safety boots, etc;
  • Contractors insurance for public liability and other risks.
  • Cost of training, purchasing books for training, obtaining or renewing CSCS cards and fees to professional bodies where they’re needed for your work.
  • Running a desk or office at home where you manage your assignments and accounts. It is reasonable for the self-employed to maintain a desk with files, printer, phone, postage, and stationery. This included partial cost for heat and light for your home ‘office’ at say 10 to 20% of the total costs of these.

What exactly is CIS?

CIS is a HM Revenue & Customs (HMRC) scheme which applies if you work for a contractor in the construction industry as a self-employed individual but not as a direct PAYE employee for a company. Essentially it is a set of rules explaining how construction contractors pay their subcontractors and deduct tax from them.

When a contractor pays a subcontractor, they take a cut of their money and send it straight to HMRC / the taxman, which goes towards the worker's Tax and National Insurance Contributions.

Right now, the rate of CIS tax is 20% if you are ‘registered’ or 30% if you are not. The majority of self-employed construction workers in the UK are CIS registered, which means deductions of 20% to their earnings are made at source

Which trades are covered and why?

The CIS covers most types of construction work in the UK, including groundworks, site preparation, repair work and general building such as bricklaying, plastering, roofing, decoration, and demolition.

Most kinds of general contractors need to register for CIS. Note that if you supply construction industry type services directly to a homeowner (so not to a contractor), this would not fall under the CIS and the customer would pay you gross on production of your invoice.

HMRC created the CIS for contractors and subcontractors in order to minimise tax evasion within the construction industry. The number of self-employed workers in the UK continues to increase so the CIS was created to prevent significant losses for the Exchequer.

Do I need to register?

As a self-employed construction industry worker, it is more likely that you will be engaged with, or taken on, by a contractor to perform construction work. This means your status is that of a subcontractor. As a subcontractor, you can choose whether or not to register under the CIS.

GOV.UK explains how you can register for the CIS as a subcontractor and what information you will need to be able to register. There are different methods depending on whether or not you have already registered as self-employed and are working for yourself as a sole-trader or through a different trading entity, such as a partnership or a limited company.

You should note that registration under the CIS is in addition to registration as self-employed for Self-Assessment, not instead of registering as self-employed. This means for those new to both self-employment and the CIS, there are two separate registrations. However, both can be done at the same time on the GOV.UK website.

Paying tax and claiming back deductions

When you’re registered with the CIS, you’re still responsible for paying the correct tax and National Insurance for your business, even if deductions have been made by your contractor or employment agency throughout the year.

Contractors or recruitment agencies will give you a monthly statement of what they’ve paid you and the deductions they’ve made to help with your accounting.

At the end of the tax year, send in your Self-Assessment tax return as usual. You should record:

  • The full amounts on your invoices as income
  • Any other income source you have
  • Any deductions contractors or employment agencies have made in the ‘CIS deductions’ field

HM Revenue and Customs (HMRC) will work out your tax and National Insurance bill and take off any deductions made by contractors and agencies.

If you still owe tax after this, you’ll need to pay it by 31 January following the end of the tax year.

If you’re due a tax refund, HMRC will pay the money back to you.

The average self-employed construction worker should get a tax rebate of around £1,600 this year.

A recent analysis by accountancy firm Brian Alfred, which specialises in filing returns for CIS construction workers, suggests that self-employed construction rebates are around 17% higher than before the covid pandemic.

The average tax rebate for people registered on the CIS was £1,370 in 2020/21 due to a combination of there being less work, so earnings were down, and grants under the Self Employment Income Support Scheme (SEISS) counting as taxable income by HMRC.

For the year ending March 2022, the average rebate owed is more than £1,600, with 90% of those analysed set for rebates compared to just 69% last year.

That £1,600 is consistent with previous normal tax years. For the 2018/19 and 2019/20 tax years – before covid working restrictions and support schemes came along – the average rebate amount was £1,590 for those eligible for one.

Simplified Example of how CIS tax works

John Carpenter is CIS registered and is hired on a site as a subcontractor. Every month John is owed £3,000 pounds for his work.

Every month the contractor or the recruitment agency he is employed by pays £600 (20% of the £3,000) to HMRC in John’s taxes. Over a whole year, this would amount to £7,200.

John’s employer pays the remaining £2,400 per month for his work and sends regular payslips and CIS statements as proof from time to time.

However, accounting for John’s tax-free allowance of £12,750, John actually only owes HMRC £4,650 in Income tax (not even accounting for his expenses).

John has overpaid tax by at least £2,550 and is now due a refund!

He can increase this rebate further by claiming, for example, £3,500 in total expenses for PPE, travel, tools, repairs to vehicle, administration and accountancy costs as detailed above. These costs will vary greatly for different people.

John’s extra allowance figure is added to his tax-free allowance meaning John will get back 20% of his £3,500 expenses or a further £700 in a rebate.

Johns total tax rebate now becomes a very nice £3,250!

Important Note – the above example is a simplified example and does not take into account National Insurance contributions and whether you pay Class 2 and/or Class 4 contributions depending on your ‘profits’ or net earnings as self-employed. You will be able to pay these NI contributions through your Self-Assessment by reducing your rebate.

Learn more here about how to submit your claim. GOV.UK

How can Recruiteasy Help You?

As a CIS registered specialist construction recruitment and employment business RecruitEasy is of course obliged to make the statutory deductions from workers on behalf of HMRC and knows the system.

Although Recruiteasy are not accountants or tax experts, they can advise you on how to do your accounts yourself (which is easier than you think) and submit these online to HMRC before the 31 January deadline each year or, instead, point you in the right direction for a cost-effective accountancy service.

Although the deadline for SA submission is 31 January annually, the accounts submitted relate to the previous tax year ending 5 April each year. E.g. the SA return due by 31 January 2023 will be for tax year 6 April 2021 to 5 April 2022.

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