Brick by brick, construction workers change our landscape, building everything from new homes to skyscrapers. But relatively few construction workers understand how CIS taxes are taken from their hard-earned pay. This tax scheme, covered in confusing paperwork and contractor middlemen, bleeds the bank accounts of builders and contractors alike. But what if you could get some of that money back, adding thousands back into your pocket each year? 

This guide will take you through the basics of CIS tax returns, empowering you to reclaim what’s rightfully owed. We’ll decode the jargon into plain English so you can cut through the smoke and mirrors. Whether you're a site manager, independent contractor or subcontractor, it’s time to learn what CIS takes - and how to legally get it back.

What does CIS stand for?

CIS stands for the Construction Industry Scheme. It’s a special tax scheme just for the construction industry. It affects most construction work done in the UK, from site preparation to repairs, decoration and demolition. There are some exceptions but, for most general contractors, the scheme's compulsory.

Normally, when you file your own tax returns through Self-Assessment, you get your pay with no tax deducted at source. As a construction subcontractor, however, the rules you follow are a little different. Under CIS, your contractor hacks off 20% of your pay before they fork it over.

Why does CIS even exist?

It all boils down to HMRC getting bent out of shape in dealing with tax fraud in the building trade. Basically, they decided there was too much dodgy “cash in hand” nonsense going on in construction and clamped down on it hard. The way they went about it means that your contractor coughs up a chunk of tax to HMRC directly, taking it out of your pay. It's like making an advance payment against the tax you'll owe, designed to make it harder for subbies to wriggle out of paying up. It's not super-popular, obviously, and can leave you badly in the lurch if it goes sideways. Even so, the taxman reckons it's worth the hassle if it chokes off the tax evaders.

What's the difference between a contractor and a subcontractor?

People in construction tend to throw these terms around a bit in general conversation, but the CIS system draws some pretty sharp lines between them:

  • Contractor: generally, a person or business who pays subcontractors for construction work. That's a little vague, though. If you're a homeowner splashing out on a new kitchen or some roof work, for instance, HMRC won't be expecting you to deal with CIS deductions.
  • Subcontractor: a business that takes on work from a contractor.

A lot of the time, you can end up being both a contractor and a subbie at once. For instance, this can happen if a business is contracted to do some building work, but then pays someone else to do some of it. At that point, you're getting 20% of your pay sent to the taxman by your contractor, and also sending him 20% of your own subcontractors' cash. It can get messy at times, so you're probably best off getting some expert advice if you're not 100% sure where you stand.

How do I register for CIS?

If you're a self-employed construction subcontractor, you've got a few main options for registering for CIS. You can:

  • Contact the CIS helpline on 0845 366 7899.
  • Use the HMRC website.
  • Get in touch with RIFT and switch from PAYE to CIS.

If you're using the HMRC website, you'll need to log in using your Government Gateway ID. However you choose to do it, you'll also have to give them:

  • Your Unique Taxpayer Reference (UTR)
  • Your VAT registration number, if you have one.
    Your National Insurance number.
    Your legal business name or trading name.
    If you need help on getting your Limited Company correctly set up and registered then get in touch with RIFT Accounting.

Why should I register as a CIS Subcontractor?

Registering with the CIS may not strictly be compulsory for subcontractors, but it can be painful if you don't.

Registering means that your contractor takes 20% of your pay and gives it to the taxman. If you're not part of the scheme, that cut rockets up to 30%!

It might be possible to apply for "gross payment" status, meaning the contractor won't take anything from your pay. You'll have to pass some tests to qualify, though. Even if you do, you'll still have to pay all your tax yourself at the end of the tax year.

Also, the taxman will check every year to see if you still qualify.

How do I pay tax as a CIS worker?

The Construction Industry Scheme rules say that contractors must take 20% from the invoices they pay. That money goes to the taxman without the subcontractors ever seeing it, in the same way as if you were employed.

When you submit your Self Assessment tax return, you'll find that most or all of your tax has already been paid. In fact, since the money's been taxed at 20%, you may well have paid too much. If that does happen, you can claim a CIS tax refund.

As you can also claim for various work related costs against your in your tax return you may find that you have a lot to claim back of that 20% you've paid out over the year. Our average CIS claim is £2000.

Claiming tax refunds for construction is what we were set up to do, so no one knows more about getting the most back in your pocket than us.

What is a CIS deduction?

A CIS deduction is the money a contractor takes from a subcontractor's pay before forking it over. Right now, the rate stands at 20% - paid straight to the taxman every month.

What's a CIS card?

There are several kinds of card issued to CIS subcontractors, depending on their circumstances:

  • CIS 4(P) - the basic card most subcontractors get.
  • CIS 4(T) - a temporary card if you can't give HMRC your National Insurance number for some reason.
  • CIS 5, CIS 5 (Partner) or CIS 6 - cards you might get if you've passed the tests for "gross payment status", depending on your situation and business.

What is a CIS return?

A CIS return, or Construction Industry Scheme return, is a monthly report filed with HMRC that contractors submit to show how many subcontractors they’ve paid and how much. This should detail all earnings and expenses from construction work undertaken under the CIS scheme within the past tax month. 

For subcontractors, this scheme essentially acts as a pay-as-you-earn system for the construction industry, where contractors deduct 20% (or 30% if you’re unregistered) from your payments upfront and send it directly to HMRC. Subcontractors must submit a Self Assessment tax return at the end of each tax year to reconcile these deductions with actual tax liability, and that can potentially lead to a tax refund if you've overpaid. It’s the contractor’s responsibility to check if the subcontractors they use are verified with HMRC and to make any necessary CIS payments.

Who needs to file a CIS return?

  • Contractors: While your contractor handles the initial CIS deductions, they also need to submit monthly returns.
  • Self-employed construction workers: If you’re a subcontractor and you receive payments under the CIS scheme, you're legally obligated to complete self-assessment tax returns. However, if you don’t register for the Construction Industry Scheme, you’ll be taxed at the higher 30% rate.

What benefits are there to filing a CIS return?

Filing a CIS return can seem time-consuming and unrewarding, yet the pros far outweigh the cons. Here are just a few reasons to keep on top of your income and expenses, and submit your CIS return to HMRC:

  • Claim back overpaid tax: As we mentioned before, the 20% deduction may exceed your actual tax liability. If that’s the case, you could be due a considerable tax refund
  • Avoid penalties: Failing to file your CIS return can lead to hefty fines.
  • Maintain financial clarity: Filing keeps track of your earnings and expenses, essential for budgeting and planning for future tax years.

When you complete a CIS return, it’s a golden opportunity to reclaim any overpaid tax and ensure your HMRC records are accurate. Don't let the complexity of the scheme put you off – with the right support, you can navigate the process and could even receive a significant tax refund.

Remember, RIFT Refunds is here to help! With our expertise, we can simplify the filing process, maximise your deductions, and chase the refund you’re owed on your behalf.

Are there any exemptions for the CIS scheme?

Generally speaking, if you don't register for CIS when you're supposed to, you can expect to see a full 30% of your wages vanish into HMRC's pockets before you get them! There's a chance you might be able to apply for what they call “gross payment status”, but the rules are sticky so don't count on it. If you do qualify, then you won't lose any of your pay through CIS deductions, but you'll still have to pay tax normally through Self Assessment and/or or the Corporation Tax system.

What expenses can I claim as a CIS subcontractor?

It's not always easy to know what you can legally claim as expenses as a CIS subcontractor. It's a tricky business, and means many construction workers end up paying too much tax each year. Here's a quick rundown of things you can claim for:

  • Equipment, tools and materials. This is the probably most obvious category. Don't forget to include things like maintenance costs for your gear. If you supply your own specialised or protective clothing, you can claim it as an expense. You might even be able to include laundry costs.
  • Travel and transport. When you're shelling out for travel to temporary workplaces, keep track of your mileage, food and accommodation costs. Hold onto receipts . You'll need them to prove what you've spent.
  • Office costs. This can cover anything from internet bills to stationery. Remember you can only claim for legitimate business expenses, though. Your printer ink will probably qualify. Your Netflix subscription won't. If you work from home, you might be able to claim for a proportion of your household bills, too.
  • Administrative costs. If you've got people (even family members) helping you with things like bookkeeping, keep records about what they do. There are strict rules about claiming this kind of thing as an expense, but if you're paying them, it might count.

What is the CIS return process?

If you're part of the Construction Industry Scheme (CIS), filing a self-assessment tax return is a regular part of your financial routine. For those working under CIS, whether as contractors or subcontractors, the process involves completing your tax return at the end of the tax year. Subcontractors employed through CIS have a shared deadline of 31st January for submitting their tax returns, in line with self-employed tax return deadlines.

Contractors, responsible for paying subcontractors, face a monthly obligation to file returns with HMRC by the 19th of each month following the last tax month. This monthly process keeps you compliant with the CIS scheme and ensures accurate reporting of payments made to subcontractors.

CIS tax returns are a common part of the construction industry. It's crucial to avoid mistakes during online filing to prevent paying more tax than you should. If you ever find yourself navigating through the complexities of the process, finding help is key. Many find guidance from experts useful in understanding the details. Additionally, using tools like RIFT’s tax return calculator can offer valuable insights into potential refunds. Because let's face it, we all could use a bit of clarity when it comes to tax returns.

When you're paid through CIS, your contractor withholds a portion of your pay and sends it directly to HMRC. While this process removes much of the responsibility from subcontractors, the system acts as an ‘advance payment’ toward your eventual tax and National Insurance responsibilities. The bright side is that you can reclaim the excess tax through your Self Assessment tax return.

Understanding allowable expenses is key to maximising your refund. Construction workers can claim for multiple costs, including work travel, essential tools, materials, business-related expenses, and accountancy fees. This knowledge is essential for making the tax return process work for you.

Switching to RIFT Refunds for your tax needs is seamless, even if you already have an accountant. RIFT's industry expertise means we’re familiar with CIS return and can maximise your rebate. If you’re after a hassle-free and expert-guided approach to tax matters within the construction industry, get in touch.

What should I do if I have worked CIS and PAYE in one year?

If you've worked part of a year under PAYE and part under CIS, don't worry we can still do your tax rebate and tax return for you. It's a little more complicated but you won't get any of that stress yourself, because we're here to help.

Why is complying with CIS returns important?

Meeting CIS return requirements isn’t just box-ticking. It's a crucial part of staying on the right side of the taxman and ensuring smooth financial reporting.

Failing to meet CIS return requirements can lead to more than just raised eyebrows from HMRC. There are real consequences, and they often come with a hefty price tag. Late or incorrect filings may result in financial penalties, and these can quickly add up. Worse still, non-compliance can open the door to legal issues, which is the last thing anyone in construction needs. Not submitting CIS returns isn’t ‘playing hardball’. It actually puts your business and finances at risk.

Timely submissions mean steering clear of those pesky fines. Keeping your finances in order ensures you're not needlessly parting with your hard-earned cash. By dotting the I's and crossing the T's on your CIS returns, you're also building a solid legal foundation. Legal disputes are a headache no construction worker or contractor wants to deal with, and timely submissions help keep those troubles at bay.

So, in the world of construction and CIS returns, compliance isn't just about following the rules - it's a strategic move to protect your business and keep your finances ticking over smoothly.

 Challenges for self-employed construction workers

  • Putting your house in order

    Whatever kind of work they do, pretty much everyone dreams of being their own boss sometimes. Whether that means building an empire, or just putting one brick on top of another, it's about independence and freedom.

    Right now in construction, we've got close to 100,000 self-employed workers. With almost 40,000 of those appearing in the last year, the government's actually kind of worried about it. In fact, they've been clamping down on certain kinds of self-employment with new rules and regulations.

  • False self-employment

    What they're mostly bothered about is what they call "false self-employment". Basically, some firms were working a tax dodge by treating their employees as subcontractors when they really weren't. It was bad for HMRC, and worse for the workers. As well as ducking taxes, some of these "intermediaries" were avoiding responsibilities like employment rights and holiday pay.

    The government's been cracking down on false self-employment in construction, but honestly they're flailing around a bit about it. That's lead to a bit of confusion.

  • Self-Assessment tax returns

    There's good and bad about self-employment, obviously. You get some freedom and flexibility you might not otherwise have, that's true. You've also got a load of new responsibilities, too. You need to file your own Self Assessment tax returns, for one thing. Also, you can say goodbye to job security, sick pay and your workplace pension. It's a swings-and-roundabouts thing.

  • Finding work

    Another consideration is that working for yourself can easily turn into working for nobody. There's always competition out there, and you really need to promote yourself to get work. You can't count on clients to magically trust you - or even to know you exist!

    Along with the challenge, though, there's always opportunity. Experts are warning the construction industry's facing a "skills time bomb". There just aren't enough highly skilled workers coming up through apprenticeships and training schemes. Demand's booming, but we're running out of workers. You might well find that a specialised skill you have is the ticket to a whole new corner of the market.

    If you're already self-employed, or looking to go that route, get in touch with RIFT. We're experts in construction and know the terrain like no one else. From tax refunds to Self Assessment returns, we're here to help you build your dream job.

Expert insights from RIFT

Filing CIS returns isn’t anyone's idea of a good time, but handling them right keeps HMRC auditors off your back. Here's a quick checklist to make sure you’re always on top of CIS:

Get organised early: Whether it’s handwritten in a notebook or documented on a fancy spreadsheet, track subcontractor payments and related taxes as they occur. Document names, verification numbers, hours, gross pay, materials costs, deductions - everything in real time. Clean, accurate records make last-minute filing much easier.

Don’t be late: HMRC charges steep fines for missing submission deadlines. Mark the 19th of each month in your calendar with alerts leading up to it. Being organised beats last minute scrambles.

Check your maths: Before hitting submit, double check all the numbers on your return. Make sure subcontractor names, pay info, materials costs and deductions square up. Small mixups can cause audits.

Call in a pro: Tax specialists like RIFT can handle CIS scheme intricacies so you can focus on the job. We aim to make CIS returns easier, seeking to reclaim maximum funds while resolving any issues with HMRC quickly, before they snowball. Senior Tax Specialist at RIFT Refunds, Connor Masters ATT says:

Unlike accountants who charge per hour, our single is for an all-in-one service which includes switching from your previous accountant, avoiding penalties due to late return and yearlong aftercare and advice whenever you need it.

Go digital: Cloud accounting software can automate tedious tasks and streamline messy paperwork. Accounting software can handle estimates, schedules, invoices, payments, deductions, monthly reports, and tax filings all in one place. Less manual work means fewer human errors. Plus, cloud access lets you or your accountant log in from any device or location to stay on top of details. This is great for general contractors managing multiple sites or busy subcontractors that are always on the go.

When you stay diligent, CIS reporting doesn't need to be a headache. Lean on specialist expertise so you never pay more than you owe.

If you are due a CIS tax refund, acting quickly secures your payout faster. Verify your eligibility through RIFT’s user-friendly Tax Return Calculator. In a matter of moments, you can see if you have hundreds or thousands coming back. Don’t risk future fines or audits either - getting compliant protects your interests.

For personalised guidance from registration through filing, RIFT specialists make CIS simple. We maximise your deduction accuracy while resolving any issues with HMRC directly on your behalf. Recover every pound possible from self-employment, employment or CIS work while avoiding penalties.

Don’t tackle confusing CIS returns alone and miss out. Contact RIFT to claim your full tax refund with complete peace of mind. Our all-inclusive service handles everything from calculations to submissions and beyond. Partnering with us means more money back to you.