Want your CIS refund sooner rather than later? Complete your tax return now

The Construction Industry Scheme (CIS) lets you deduct tax from each subcontractor and pay it to HMRC. Here’s why it’s a good idea to get your tax return early.

When you work in the construction industry, the skills you need vary from project to project, which means you end up working with different subcontractors throughout the year. The Construction Industry Scheme (CIS) lets you deduct tax from each subcontractor and pay it to HMRC. Here’s why it’s a good idea to get your tax return early.‍‍

What is the Construction Industry Scheme?

‍ Before the CIS, contractors would pay subcontractors for their work and let them sort out the tax. The CIS lets them deduct tax before they pay. HMRC treats it as an advance payment towards the subcontractors’ income tax and National Insurance, but they must have a payslip showing their earnings and tax. The scheme is compulsory for all construction contractors. If you’re a contractor, you can sign up here (https://www.gov.uk/what-you-must-do-as-a-cis-contractor/how-to-register) if you haven’t already, and there’s an online portal where you can complete your monthly return and make payments.

If you’re a subcontractor, the deductions a contractor can take from your earnings vary depending on whether you’ve signed up to CIS or not. If you have, they deduct 20% of your earnings. If you haven't, it rises to 30%, meaning you’ll have less money in your pocket each month. You can find out how to sign up here. (https://www.gov.uk/what-you-must-do-as-a-cis-subcontractor)

Why you might be owed a refund

‍ Contractors can’t claim refunds under the CIS unless they’re also a subcontractor themselves or there’s been an administrative error that needs to be corrected.‍ ‍

Subcontractors can claim refunds when they file their tax return for a few different reasons. When you’re self-employed, your income depends on the amount of work you get throughout the year. There might be gaps because work has been slow or you’ve taken some time off.

The contractor deducts 20% or 30% from your earnings without giving credit for your tax-free allowance, which can mean you end up overpaying. You can also deduct your business expenses from your income, such as your tools, travel costs and any safety equipment.

Once you’ve completed your full calculation at the end of the tax year, you might find that the tax you need to pay is lower than the amount a contractor has already paid for you, so you get a refund.

Why it’s a good idea to complete your tax return early

‍It’s a good idea to complete your tax return early, as the sooner you do it, the sooner you get any refund that you’re owed. Whether you’re a sole trader registered with HMRC or a limited company, the tax return deadline is 31st January in the year after the end of the tax year. When a contractor pays tax by deducting it from your earnings, that puts money in HMRC’s pocket instead of yours. Completing your tax return early means you can claim it back sooner rather than later.

That could help improve your cash flow, giving you a boost in April instead of waiting until the deadline in nine months. It could make a real difference, especially when you’ve got bills to pay or need to invest in new tools or equipment. Plus, wouldn’t you rather have your money in your pocket, rather than sitting in HMRC’s bank account?

Help us to help you

Working with an accountant means you don’t have to complete your tax return yourself or wonder whether any of those boxes asking about allowances apply to you. We’ll be able to complete your return for you and help you understand the rules.

As we’ve mentioned, deadline day is at the end of January, which means it can get a bit busy, as lots of business owners come back from their Christmas break and start thinking about their tax return! When you get in touch about your return at the start of the tax year, we’ll have more time to talk you through it, answer your questions and double-check everything to make sure it’s accurate. We work with our clients to help them create a financial plan that improves cash flow and tax efficiency in the future, and it’s great to have more time to have those conversations.

Organise your documents

Are you ready to get your tax return done? Getting your documents organised makes the whole process more straightforward, as you won’t have to pause to go in search of a missing figure. You’ll need to gather all the documents you’d normally use for your tax return. That includes your invoices and any other income documents, invoices and receipts for your expenses and bank statements to show whether you’ve received any interest or income outside of your business. The contractors who paid you should also provide a payslip showing how much they’ve paid you and the tax you’ve deducted. If they haven’t, or if a document has gone missing, getting organised early means you can contact them to ask for replacements without worrying about missing the deadline.

You can send all the documents to your accountant, who’ll double-check that everything’s there, so you won’t have to worry that you’ve missed something. If you have a spreadsheet or use accounting software, you can share that with your accountant as well. Then you can relax, knowing that if you’re owed a refund, your accountant can claim it for you and it’ll soon be on its way.

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Whatever stage you’re at with your tax return, we’re here to help. Book a free consultation now.