Are you a subcontractor and think you’re owed a tax refund? Whether you are depends on the rules of the Construction Industry Scheme (CIS). They’re complex, but not impossible to understand, so let’s go through it and explain when you might be due a refund.
Construction Industry Scheme: a recap
We know you’ve heard about the CIS – any contractor and subcontractor would have. But in case you don’t quite understand it, or just need a recap so the section about refunds makes more sense, let’s go over the fundamentals of the CIS.
The CIS is a tax deduction scheme specific to the construction sector, implemented to combat tax evasion within the industry by monitoring and regulating payments by contractors to subcontractors.
Under the CIS, contractors are required to deduct money from a subcontractor’s pay and submit these directly to HMRC. The deducted amount serves as an advance payment towards the subcontractor’s tax and National Insurance contributions.
If you, as the subcontractor, contract out the job to someone else, you become the contractor – and have to calculate and take away deductions from the pay you give to your subcontractor(s).
How does CIS affect subcontractors?
As a subcontractor, the CIS directly impacts how you receive payments for your work, but the deducted amount varies depending on whether you’re registered with HMRC as a subcontractor or not.
If you are registered with HMRC and have provided your Unique Taxpayer Reference and National Insurance number to your contractor, they’ll deduct payments at 20%. If you’re not registered, the deductions will be at 30%.
Claiming refunds as a subcontractor
Under the CIS, you have to rely on the contractor to deduct the correct amount. If they haven’t, you may be eligible for a refund. This usually happens when your tax liability is lower than the amount deducted under the CIS.
To claim a refund, you’ll need evidence that a mistake has been made. Here’s what you can do:
- Keep accurate records: Maintain detailed records of all your income, expenses and deductions related to your subcontracting work. Again, you’ll need to be able to prove that you’re owed a refund.
- File your tax returns: Make sure you file your tax returns accurately and on time. This is important so HMRC can assess your tax liability and determine if you’re owed a refund.
- Review your CIS statements: Next, review your CIS statements to verify the accuracy of the deduction made.
- Submit refund claims: If you think you’re entitled to a refund, you can submit a claim to HMRC along with supporting documents including CIS statements, tax returns and evidence of expenses.
Need help with your refund?
Navigating the CIS can be challenging, especially when it comes to claiming refunds. But by understanding your rights and keeping good records, you can ensure that you get back the funds that you’re entitled to.
But if you’re ever confused and in need of some assistance, you can always get in touch with us – we’ll help you understand your responsibilities as a contractor and ensure you get the right deductions as a subcontractor.
Reach out and contact us today.
