If you are a contractor in the UK, you should be familiar with the Construction Industry Scheme. The scheme sets out the rules for how contractors and certain other businesses must handle payments to subcontractors for construction work.
Under this rule, contractors must consider the tax status of any subcontractor they pay, as determined by HMRC. While CIS is optional for subcontractors, contractors must sign up to CIS, and even if your subcontractors have taken care of their own taxes, failure to sign up to the scheme could lead to penalties.
In this guide, we will outline exactly what you should know about paying taxes as part of the CIS scheme. At Tax Driven Accounts, we have supported many CIS contractors in the UK and we know that there is a lot of confusion when it comes to tax obligation.
Keep reading to find out our tax tips for CIS contractors, and how you can benefit from a dedicated CIS tax accountant.
Understand How CIS Deductions Work
Registering as a subcontractor with HMRC is crucial because it impacts your tax obligations. As a contractor, you must deduct the appropriate amount from a subcontractor’s wages and ensure correct payment.
Being registered allows you to enjoy a 20% standard deduction on your payments. If unregistered, this deduction rises to 30%. Remember, these rates apply only to payments on account to HMRC and do not reflect your full tax liability.
CIS Self Assessment UK: Keep Accurate Records
As a contractor, it is essential to keep accurate records of all money coming into and out of your account. You should also keep accurate records of invoices, receipts, mileage costs, and any materials you have purchased for the work you have done.
If you have little financial experience, the idea of bookkeeping and keeping up to date with your outgoings and incomings may seem daunting, but it is essential that you do so to ensure that you are remaining compliant with your tax obligations and receiving financial compensation for any expenses.
Hiring an accountant to help with your bookkeeping can relieve many of the responsibilities of maintaining your records and ensure that you remain compliant with your tax obligations. If you find it challenging to keep your records, that is a sign that you need a bookkeeper for your business.
CIS Deductions Explained: What You Can Claim as Expenses
As a contractor, it is important that you understand your deductible expenses. These expenses are considered when you pay your taxes and are deducted from your overall tax liability.
Some items that you can claim as expenses as a contractor include:
- Tools and equipment
- PPE and uniforms
- Travel (fuel, mileage)
- Insurance
- Home office (if applicable)
When claiming legitimate business expenses, HMRC will deduct business-only costs from your income prior to calculating your tax.
File Your Self-Assessment on Time
It is essential that you file your tax self-assessment on time as a contractor. The deadline for filing is the 31st of January, and even if you have deductions, you are still expected to ensure that you submit your return on time.
We understand that it can be challenging to remember when to file your tax return. That’s why we proudly offer a self-assessment tax return service. We can take care of your finances while you focus on what really matters.
Reclaim Overpaid Tax
Many CIS contractors sometimes overpay their taxes because they claim deductions that are too high. If you feel you’ve made a CIS tax overpayment, it’s important to know the steps to claim a refund.
To get a refund in the UK, you should first gather all relevant tax documents and receipts. Then, complete the appropriate tax return form, claiming any overpaid taxes and deductions you’re eligible for. Submit the form to HM Revenue & Customs (HMRC), either online or by mail. After processing, HMRC will issue a refund for the overpaid amount, which can be received via bank transfer or cheque.
We recommend working with an accountant to ensure that everything you file is accurate. This will speed up the process, avoid errors, and help you manage your accounts.
Consider Going Limited
If you are a high earner, running as a limited company under CIS might actually save you more in the long run.
Forming a limited company provides contractors with notable advantages such as improved tax efficiency, limited liability, and enhanced professional credibility. However, it also involves more administrative work and extra responsibilities compared to running as a sole trader.
If you choose to change your company formation and you need help ensuring that you remain compliant with your tax obligations, we can help.
Work With a CIS-Savvy Accountant
Above all, it is essential that as a CIS-registered contractor, you work with a CIS-savvy accountant who knows the best ways to support you and your business. CIS accounting can be more complex than accounting for a standard trader, so working with someone who understands the differences is crucial.
Ensure Tax Compliance With Tax Driven Accountants
At Tax Driven Accountants, we proudly manage accounts for a range of CIS contractors, and we know exactly what is needed to manage a contractor’s accounts smoothly.
Through our years of experience, we have learned exactly what is necessary to manage CIS accounts responsibly. If you need help registering as a CIS contractor or managing your accounts, get in touch with our accountants today.