For many construction workers, the amount taken from each payment under the Construction Industry Scheme can make tax time confusing. If you are a CIS subcontractor, preparing your records early can help you understand your tax position and make sure you receive credit for CIS deductions already paid to HMRC.
Your CIS deductions are not an additional tax charge. They are advance payments towards your Income Tax and National Insurance bill. When you complete your Self Assessment tax return, HMRC takes qualifying CIS deductions into account when calculating what you owe.
Check all your CIS payment and deduction statements
Your Payment and Deduction Statements are among the most important records to collect before preparing your CIS tax return.
When a contractor makes a CIS deduction, they should give you a statement showing the payment and deduction. This must normally be provided within 14 days of the end of the relevant tax month.
Check that you have statements from all the contractors you worked for during the tax year.
Your records should agree with your own invoices and bank payments.
Check the amount deducted under CIS
The standard CIS deduction is currently 20% for registered subcontractors who have been successfully verified. The higher rate of 30% normally applies where the subcontractor is not registered or cannot be verified. Subcontractors with gross payment status have no CIS deductions taken from their payments.
Do not assume every deduction is correct simply because it appears on a statement.
Compare the amounts shown on your Payment and Deduction Statements with your invoices and payment records. If something looks wrong, contact the contractor promptly.
Make sure your full CIS income is included
When completing your Self Assessment tax return as a sole trader or partner, HMRC expects you to report the full amount of your CIS income before deductions.
You then report the total CIS deductions separately. HMRC uses those deductions as credit against the tax and National Insurance calculated on your relevant profits.
This is important because you should not simply enter the amount that reached your bank account as your business income.
Review your CIS expenses
Your CIS deductions are separate from your allowable business expenses.
You should review your records for genuine business costs that may be deductible when calculating your taxable profit.
Depending on your circumstances, these may include:
- Tools and equipment
- Protective clothing
- Business insurance
- Vehicle and travel costs
- Materials you have paid for yourself
- Mobile phone and internet costs where applicable
- Accountancy and professional fees
- Certain training and professional costs
HMRC allows self employed individuals to deduct qualifying business expenses when calculating taxable profit. The exact treatment depends on the expense and your circumstances.
Be careful with travel and vehicle costs
Travel is an important area for many CIS subcontractors, but not every journey is automatically an allowable expense.
You need to distinguish between genuine business travel and ordinary private journeys.
Keep appropriate records of:
- Business mileage
- Fuel
- Parking
- Vehicle costs
- Public transport
- Accommodation where relevant
You may be able to use simplified expenses for some vehicle costs, depending on your circumstances and accounting method.
Check your materials and equipment records
Construction work often involves purchasing materials, tools and equipment.
Keep receipts and invoices for costs you have paid yourself and check whether the expense is allowable or whether capital allowances or another tax treatment applies.
It is also important to distinguish between your own business expenses and costs that were already taken into account when your contractor calculated the CIS deduction.
Check whether any deduction was incorrect
If you believe a contractor has made an incorrect CIS deduction, do not simply ignore the difference.
Speak to the contractor and ask them to check their records. HMRC guidance also provides procedures for dealing with incorrect CIS deductions and repayment claims.
Keeping your Payment and Deduction Statements makes it much easier to investigate discrepancies.
Understand how a CIS refund works
A CIS refund UK claim is not simply a request to receive every deduction back.
When you complete your Self Assessment tax return, HMRC calculates your Income Tax and National Insurance liability based on your taxable profits and other relevant information. The CIS deductions already taken are then credited against that liability. If the deductions exceed the amount due, the excess may be repayable, subject to your overall tax position.
So, the amount refunded depends on your complete tax position rather than simply the total CIS deductions shown on your statements.
Check your bookkeeping against your bank account
Before starting your tax return, reconcile your records.
Your review should compare:
- Contractor statements
- Invoices
- Bank payments
- CIS deductions
- Business expenses
This can help identify missing income, duplicate transactions or expenses that have not been recorded.
Keep your CIS records organised
Good record keeping is essential when preparing a CIS tax return.
Keep your:
- Payment and Deduction Statements
- Sales invoices
- Purchase receipts
- Bank statements
- Mileage records
- Expense records
- Business correspondence
- Bookkeeping records
HMRC may ask for evidence to support information in your tax return, so keeping your records organised throughout the year is important.
Do not leave your tax return until the last minute
CIS subcontractors often have multiple contractors, numerous Payment and Deduction Statements and a large number of business expenses to review.
Preparing early gives you time to:
- Chase missing statements
- Correct discrepancies
- Review CIS deductions
- Check allowable expenses
- Estimate your tax liability
- Plan for any payment or expected refund
It also gives you time to resolve questions before the Self Assessment deadline.
Prepare for the next tax year
Once your return is prepared, use the information to improve your records for the following year.
Keeping a monthly folder for CIS statements, invoices, receipts and expenses can make your next return considerably easier.
Digital bookkeeping can also help you keep your records updated rather than trying to reconstruct them later.
How Tax2u can help
CIS tax can become complicated when you have several contractors, different deduction rates or a large number of business expenses.
Tax2u can help CIS subcontractors with:
- CIS deduction checks
- Self Assessment tax returns
- CIS refund calculations
- Allowable expense reviews
- Bookkeeping
- HMRC compliance
We can review your records, check that your CIS deductions have been included correctly and help you understand your overall tax position.
Final thoughts
Preparing your CIS tax return does not have to be stressful.
Start by collecting your Payment and Deduction Statements, checking your CIS income, reviewing your CIS deductions and identifying genuine allowable business expenses. Then reconcile your records with your invoices and bank statements before submitting your return.
Taking these steps early can help reduce errors and ensure the CIS deductions already paid to HMRC are properly credited against your tax liability.