Blog, CIS

How do I claim a CIS refund?

Contents show

What is a CIS contractor (subcontractor)?

If you qualify as a Construction Industry Scheme (CIS) contractor/subcontractor, you will be supplying construction work to the construction industry, including building site preparation, labouring, decorating, and refurbishment.

Some jobs are exempt from the CIS, so if you provide scaffolding hire (without labour), provide architecture and surveying services, do carpet fitting, deliver materials or provide non-construction work, like running a construction site facility such as a canteen, you are not eligible to operate under the CIS.

However, if you spend £1 million or more on construction within a three-year period, you are considered a CIS contractor. In instances where a contractor falls under both contractor and subcontractor categories, they must follow the rules for both categories.

Property developers buying and selling property, although not strictly speaking contractors, may fall under the aegis of the scheme, so advice should be sought from an accountant with expertise in this area to ensure absolute compliance with the CIS protocol.

Registration

All contractors are obliged to register with HMRC for the CIS; subcontractors that do not wish to have deductions made from their payments at a higher rate of deduction (30% rather than 20%) should also register for the scheme with HMRC.

After registration, HMRC will provide the details that contractors and subcontractors will need to use when they deal with payments and apply for CIS refunds. See more about registering for the scheme.

Applying for gross payment status

Subcontractors can apply for gross payment status, so there are no deductions taken from their payments, but there are certain qualifying conditions. See how to apply to be registered for gross payment.

CIS subcontractors and contractors, whether sole traders, partnerships or limited companies, must register with HMRC under the Construction Industry Scheme to be eligible for the tax refund.

What can I claim back through CIS?

How you claim a CIS tax refund will depend on whether you are registered for CIS. Sole traders and partnerships are required to complete and file a self-assessment (SA) tax return. It must outline the full amounts invoiced for subcontracted work and received as income; any deductions made by a contractor should be included in the ‘CIS deductions’ field.

HMRC will then subtract any deductions made by the contractor and refund any tax that may have been overpaid. If you have underpaid tax, you will need to pay whatever you owe by 31 January.

For limited company contractors working under the CIS gross payment protocol, they need to complete a Corporation Tax return and declare all income. Any CIS deductions made will be paid back through the company’s monthly payroll scheme. Before HMRC takes off the CIS deductions made via PAYE for tax and national insurance, the company must submit their full payment submission (FPS) and employer payment summary (EPS).

Unpaid CIS deductions can be carried forward to the next month or quarter in the same tax year in the PAYE bill. The EPS of the company should indicate that it has nothing to pay and inform HMRC that its PAYE bill for the period is zero.

If you’re both a subcontractor and a contractor, you need to register for the CIS in both roles. Note that overseas-based subcontractors that carry out construction work in the UK must also register.

As a CIS contractor or subcontractor working as a sole trader or through a partnership, providing you are registered for the CIS with HMRC and have a Unique Taxpayer Reference number under self-assessment, you can claim back any overpaid NICs and tax and claim for expenses (providing they are wholly and exclusively related to running your business) on your self-assessment tax return.

The most common forms of allowable expenses are:

Vehicle expenses: provided that the purchase of a vehicle is exclusively for business use, you can claim tax back on the purchase (as a capital expense) and for things such as fuel, insurance and road tax.

Mileage: can be claimed as an expense provided they were incurred while travelling to a temporary place of work. Under the CIS, this means that miles driven to get to and from contracted jobs or suppliers, for example, are tax deductible (but note that the temporary workplace rule might not apply if the contracted job lasts for more than 24 months).

Travel: you can claim for travel and subsistence expenses in relation to a temporary workplace – considered temporary if your contract is less than 24 months.

Plant, tools, equipment and work clothes: the purchase or replacement of tools, protective clothes and other work-related equipment can be claimed as an expense.

Admin costs: ‘remaining admin costs’ relate to any expenses that enable contractors/subcontractors to carry out their work, e.g. phone, stationary or postage costs.

General company running costs: relevant public liability insurance, trades union fees, and home-office costs are legitimate tax-deductible expenses.

What items are NOT allowable CIS expenses?

Only allowable expenses must be included on your CIS tax return. The items normally NOT classed by HMRC as allowable expenses are:

Rent or mortgage payments for your personal residence;
Subsistence (unless working away from home at a temporary workplace);
Own salary, national insurance contributions, pension, and any other fees for services or work carried out unless “wholly and exclusively” for business purposes;
Legal fees in relation to fines issued for offences or tax disagreements or any legal element related to the purchase of plant machinery or property;
Personal travel, journeys related to commuting between home and workplace, purchase of vehicles not related wholly and exclusively to work;
Hardware purchases for office/admin (computer, phone, etc.) must be apportioned between business and private use if any portion of them is for private use;
Subscriptions to political parties, charities or clubs;
Unless specifically business-related, loan, overdraft, or other financing repayments, any recoverable costs linked to insurance claims;
Bad debts not included in turnover, any debt connected to a fixed asset;
Initial expenses for the purchase of business premises;
Utilities must be apportioned between private and business use if dual use;
Hospitality, entertaining suppliers/customers/clients;
Any goods and/or equipment for private use; if for dual personal and business use, then the usage must be apportioned;
Asset depreciation of equipment, losses on asset sales;
Maintenance for the extension or renovation of buildings, repairs unless specifically business-related;
Clothing (except uniform or special items such as boots, hardhat, and high-vis wear, all of which are specifically for work use);

Note that should your tax return include non-allowable expenses, you will incur penalties and need to pay back what you claimed illegitimately.

How far back can you claim CIS?

CIS contractors or subcontractors that suspect they have overpaid tax can submit a backdated CIS tax refund claim for the past four years providing they have worked at two or more construction sites for the same company and/or use public transport or their own vehicle to get to work.

On average, CIS workers who make backdated CIS refund claims typically get refunded around £2,500.

How do you claim a CIS refund online?

CIS subcontractors working through limited companies can apply for a CIS refund online by using their Government Gateway account to log into their tax section.

To streamline the process and avoid HMRC miscalculations, it is better to make applications for CIS refunds either at the end of the company’s financial year or at the end of the tax year to avoid any CIS contracts being left out of the calculation.

For clear instructions about how to make a claim online or by post, see the relevant gov.uk page.

You will need to provide the following:

Company name, telephone number and UK address
PAYE reference numbers
UTR
Estimated over-payment figure

If you want HMRC to deduct your repayment from other amounts owing, you should provide the following:

Corporation Tax UTR and either the end date of your company’s accounting period or accounting period number;
VAT registration number and the VAT Return period;
To set against ‘other liabilities’, include the type of charge, year or period it refers to and any reference numbers.

It is not necessary to submit supporting information with your claim to HMRC, but further details may be requested if your claim does not match up with HMRC’s records.

If you want your construction industry scheme CIS refund to be paid into a bank or building society account, you’ll need to provide HMRC with the following:

Bank or building society name
Bank account number and sort code
Account holder’s name

The online application process will not be appropriate if an accountant or other third party is looking after the refund on your behalf. In this case, you should make a claim by post with a completed form, R38. Your written application must have all the obvious personal and financial details, like company name and PAYE reference number, and be sent to:

CIS, National Insurance Contributions and Employer Office, HM Revenue and Customs, BX9 1BX

How long does it take to claim back CIS?

HMRC typically process CIS tax returns within 10 to 14 days. Delays normally relate to additional security checks to check in accordance with the CIS guidelines.

Providing all the required information is on the tax return, an accountant can normally complete and file a CIS return within 24 to 48 hours, and generally, the rebate process takes around two weeks.

Filing online and providing bank details for the refund is the fastest and more secure way to apply for and receive your CIS refund.

FAQs about CIS refunds

Our team of experienced accounting professionals can help you maximise your tax refunds and gain access to helpful resources. Check some of our most frequently asked questions regarding CIS refunds:

How do I contact HMRC CIS?

Online

Ask HMRC’s digital assistant to get a quick answer to your query about CIS.

By phone

Call HMRC if you have a general query about the Construction Industry Scheme. Make sure your personal details and address are up to date in your personal tax account, or you could fail telephone security. If you do not already have a personal tax account, you can set one up.

Telephone: 0300 200 3210

Outside the UK:+44 161 930 8706

Can I contact HMRC by post?

You can write to HMRC for general enquiries about the Construction Industry Scheme or to appeal against a CIS penalty:

PT Operations
HM Revenue and Customs
BX9 1BX
United Kingdom

Can I amend my CIS claim?

Yes, your claim can be amended if you find that you have not included the full amount, and you can either use the online form or make an amended claim by post.

If amending your claim by post, mark it ‘revised claim’ and give the full amount being claimed; remember to refer to your original claim in the revised claim and send it to:
PT Operations, HM Revenue and Customs, BX9 1BX, United Kingdom

What happens if CIS deductions are not made?

The term ‘construction’ covers a wide array of services, including building, decorating, repairs, and demolition. Although the CIS covers all B2B payments for completed construction works, payments made by private householders to contractors or subcontractors are not covered under the CIS.

Take, for example, a job completed for a private householder. The money paid to the contractor by the household is not subject to CIS tax deduction. However, if the contractor hires a subcontractor to help on the job, then any payments made by the contractor to the subcontractor are subject to the CIS.

The contractor should check whether the subcontractor is registered for the CIS with HMRC; if not, the contractor must deduct 30% from the subcontractor’s fee. Note, though, that if the householder pays both the contractor and subcontractor directly, then the CIS will not apply.

Note that failing to check a subcontractor’s CIS status once or repeating the oversight over the years could lead to penalties that can amount to tens of thousands of pounds for continual abuse of the system.

Conclusion

Due to the complexity of CIS administration, growing numbers of CIS contractors and subcontractors are hiring online accountants like Cloudco.

It’s quite possible to manage CIS yourself, of course, but using the services of experts in contractor and CIS contractor accounting, along with the benefits of using Xero online accounting software, means that you need never worry about non-compliance or about filing your CIS tax return correctly, to the letter and on time.

You can be 100% reassured that every deduction you may qualify for will be properly documented and submitted with your tax return or payroll system for the CIS and that every part of the documentation process will be done accurately and filed before the deadline. You will always avoid any penalties, including for late filing, and you can rest assured that you will receive every allowance and tax-related benefit you are due.