How do I claim back tax if I am taxed under the Construction Industry Scheme (CIS)?
If you are taxed under CIS, your contractor is obliged to withhold tax on its payments to you. Many people under CIS overpay tax as a consequence and need to claim a refund.
What is CIS?
If you work for a contractor in the construction industry as a self-employed individual then, under the CIS, the contractor is obliged to withhold tax on its payments to you. This is different from other self-employed individuals, who normally receive their payments gross.
Registered CIS workers receive their payments net of 20% tax. If a subcontractor is unregistered, they will receive their payment net of 30% tax. It is also possible to apply to receive payments gross.
There is more information on the CIS on GOV.UK.
When will a refund be due?
Where tax is deducted under CIS and you are on a lower income, a refund will normally arise because of the expenses of the trade and because you will normally have personal allowances available.
You can check our self-employment section for guidance on the types of expenses that you may be able claim in your tax return. The general rule is that any expenses must be wholly and exclusively incurred in relation to your work.
It is worth bearing this in mind, because you may be asked to provide evidence by HMRC that firstly, you actually incurred an expense and secondly, the expense was wholly and exclusively for your business. You should not just make them up or put in private expenses just so you can reduce your taxable profits and get a bigger refund – it is illegal and penalties are severe.
How do I get the refund?
If you work under the CIS, you will need to file a Self Assessment tax return and your refund will be reconciled as part of this.
For more information on how and when refunds arising through a tax return are paid, see our page How do I claim back tax if I complete a tax return?.
Should I use an agent to file my tax return and get my refund?
Under CIS, you are faced with having to complete and submit an annual tax return to claim what may be a fairly significant tax refund.
Completing and submitting a Self Assessment tax return can be complex and daunting. You may feel your only option is to pay to use a tax agent to assist you.
But you should be aware that when it comes to CIS, there can be problems with certain tax agents.
For example, they will often work for a percentage of your refund rather than for a fixed fee and so have a vested interest in maximizing the value of the claim (which they might do by inflating the tax refund due by including fictitious or non-tax-deductible expenses, for example).
While you may be tempted to turn a blind eye to such thing, as this will mean a higher refund in the first instance, if HMRC check your tax return, it is you rather than the agent who will have to account for the underpaid tax, perhaps some years later. In such cases, on the basis that a fee will have been deducted already by the tax refund organisation, the HMRC debt may well be more than the financial benefit you received in the first place.
There can also be problems connected to the fact that often these agents will arrange for the CIS refunds to be paid to themselves, so that they can then deduct their fees before passing the balance to you.
You can find an excellent article on the charity Tax Aid’s website Inflated refunds and unscrupulous advisers which tells you more.
If you still want to use an agent, make sure you do your research. If possible, use one affiliated with a professional body such as:
- Chartered Institute of Taxation
- Association of Taxation Technicians
- Irish Tax Institute
- Institute of Chartered Accountants in England & Wales
- Chartered Accountants Ireland
- Institute of Chartered Accountants of Scotland
- Association of Certified Chartered Accountants
- Association of Accounting Technicians
If you are on a low income, you may be able to obtain free assistance from one of the tax charities:
Can I get a refund in year?
Yes – via the completion of form CIS40, but this only applies where your work in the construction industry has ceased, and all tax affairs are up to date.
You can find more information in HMRC’s manual on GOV.UK.
You will still be required to file your tax return for the year in which your construction industry work ceased. If, as a result of the submitting the CIS40, you received a refund, you need to include the amount as a provisionally received refund in the tax return.
You should enter the date that your construction industry work ended on the tax return, so HMRC can close down your Self Assessment record (if appropriate) and stop sending you tax returns to complete.