UK Tax Questions & Answers

The Construction Industry Scheme (CIS) is a scheme which obliges contractors to deduct UK tax at source on payments to self-employed subcontractors.

Subcontractors are classified into 3 categories which in turn determines how much tax a contractor must deduct from payments to the subbie:

• Gross – No tax must be deducted from payment to a subcontractor with Gross status;
• 20% Net – 20% must be deducted from payments;
• 30% Net – 30% must be deducted from payments.

No. CIS is only applicable for self-employed taxpayers. Employees are subject to PAYE and NIC as per normal.

You should refer to the FAQs section of our Self Assessment page which has detailed guidance on this topic.

CIS covers construction operations carried out in the UK. The rules of the scheme define the types of work that are classed construction operations. But as a general rule, the scheme includes almost any work that's done to a:

• permanent building
• temporary structure
• civil engineering work or installation

Some examples of the types of construction work that are covered by the scheme include jobs like:

• site preparation
• general construction - bricklaying, roofing, plastering and so on
• alterations and extensions
• repairs and refurbishment
• decorating
• dismantling work
• demolition

For a business to register for gross payment it must:

• do construction work in the UK and be run largely through a bank account
• have a construction turnover, excluding VAT and the cost of materials, of at least £30,000 each year (more for partnerships and most companies)
• have complied with all its tax obligations

To become a 20% Net subcontractor the business must be registered with HMRC.

30% Net status is the default position if the business has not registered with HMRC.

Refunds arise when the tax deducted exceeds the actual tax liability. As a result, if you are paid gross then you are highly unlikely to be due a refund.

Those with 20% or 30% Net status (see above) will in the majority of circumstances be due a refund. This is because the tax deducted at source is taken off the gross payment and no account is given to tax deductible expenses. As a result, the tax deducted is in excess of the real liability.

The important thing to remember is that a sole trader subject to CIS is self employed. The only real main difference between those under CIS and other self employed taxpayers is the CIS deduction upfront at the time of payment.

As such, CIS sole traders can claim a deduction for ANY expense incurred wholly and exclusively for business purposes e.g.:

• Tools
• Travel
• Vans
• Wages
• Materials
• Accountancy fees
• Advertising
• Stationary
• Telephone/internet
• Website

In order to claim a refund, a tax return must be filed with HMRC. Taxback.com offers a free estimation service which can advise you of how much you may be due back with no obligation to use our service.

As a self assessed taxpayer, you must comply with the same rules as other tax payers and keep records to support all the figures on your return for a minimum of 6 years.

As a self assessed tax payer you are subject to the same provisions as other self assessed taxpayers. We recommend you review the FAQ's in the self assessed section for further detailed background on potential penalties.

As a general rule, you will need to disclose this income to HMRC and pay tax on it. Special rules do apply if you are domiciled outside the UK or are not ordinarily resident here and your other income arises abroad.

Your taxback.com account manager will be able to assist you. The rules are too extensive, complex and dependent on your individual circumstances to summarise here.