What is a CIS Tax return?
CIS Tax is a certain Tax scheme that is dedicated to the construction industry. A CIS Tax return brings together an individual’s income and expenditure for the relevant Tax year along with the Tax that has being deducted from the main contractor.
The individual will be given credit for the Tax that they have paid through the year, and in many cases, they may be due a Tax refund if more Tax than necessary has been paid.
Alternatively, a gross payment status is another method that can be used when registering for CIS in which the sub-contractor would be paid in full. But in this case there would typically be a CIS Tax liability at the end of the year.
How does a CIS Tax return work?
Throughout the year, industry contractors would deduct Tax from payments to their hired subcontractors. This Tax is paid across to HMRC. This Tax is then assigned to that person’s Tax account. When preparing the CIS Tax Return, the individual would be expected to gather as much information possible related to income and expenditure.
Examples of the documents expected would be copies of CIS Tax statements, receipts and invoices for tools and equipment purchased. Also copies of MOT certificates that state the persons mileage and details of the sites and areas that the person has worked are useful documents.
This information is essential as it provides evidence of the income and expenditure that an individual has had for that Tax year and the more evidence that is provided the greater chance a rebate can be granted.
How Long does a CIS Tax Refund take?
Tax refund processing times can vary in time and this can be different for every individual. The average time it takes is usually four weeks but in some cases when HMRC are quiet a refund can only take two weeks. They are many reasons that the length can vary, and this is usually down to how busy HMRC are.
April and January are typically busy times and during these months, rebates can take slightly longer to process. The length of time can also vary if an individual has not registered for CIS, has giving an incorrect business name and if they have not been verified by their main contractor.
Tax rebates that consist of small sums such as those under £1000 are usually processed relatively quickly compare to a rebate of a large sum which requires additional checks to be carried out.
If an individual wants the quickest rebate possible then it is best to avoid submitting a rebate application to HMRC when they are going through their busiest periods. These are usually the end of January when the self-assessment deadline is and during April, when the Tax year has ended.
How Do I Complete a CIS Tax return?
To complete a CIS Tax return, the first step for an individual would be to register for a self-assessment Tax record using HMRC’s online portal. Once registered an SA100 form would be required to be completed.
To complete a Tax return, a UTR (Unique Tax reference) number would be needed. This number is unique and designated to an individual for HMRC to keep record of them being self-employed.
An individual would be required to include their turnover for the financial year and this calculated by adding up their total sales for the period.
Additional income and property income must also be declared if applicable.
What can I claim from a CIS Tax return?
A self-employed individual can claim for many expenses, but HMRC try to ensure that you can only deduct expenses that are strictly related to the business they work in. With regards to travelling expenditure, HMRC provide “simplified vehicle expenses” which is a flat rate provided by the government.
An individual can also claim for business travel whether it by train, bus, plane or taxi as well as accommodation during overnight business trips. Note that commuting or travelling to your business premises is not typically allowable for Tax purposes.
Stock and Raw Materials
Expenses for stock and raw materials can also be claimed as well as the direct costs that arise from producing goods. For example, bricks and cement for a bricklayer.
The costs of marketing which consist of advertising, directory listing, mailshots and websites costs can also be claimed.
Employee and staff salaries also count as allowable expenses, as well as bonuses, pension contributions, benefits, agency fees and employer national insurance contributions.
Business stationary, printing costs and postage are another element that can be claimed back this can also include business equipment such as computer hardware/software however in this case an individual may have to claim these as capital allowances if they don’t use cash basis accounting.
How often Do I Pay CIS Tax?
It is the main contractor that pays the CIS Tax, but this must be paid every month or quarter. These payments must be processed by the 22nd of each month (19th if an individual is paying by post).
Failure to comply could potentially result in interest as well as penalties.
How much does a CIS Tax return cost?
Our charges for preparing a CIS Tax return would be £245. The good news is that because our fees are also Tax deductible, the actual cost to yourself is only £173.95.
For this fee, we would ensure that your Tax return is professionally prepared ensuring the largest possible Tax rebate. You can also have piece of mind that your CIS Tax return is being prepared by qualified Tax agents.
CIS Tax return deadline?
The 31st October is a key date in which the deadline for paper submissions of self-assessment Tax returns are to be submitted to HMRC. For electronic submissions the deadline is the 31st of January.
CIS Tax standard rate?
Within CIS they are three deduction rates that are used to Tax certain sub-contractors. The standard Tax rate for registered sub-contractors is 20%. A 0% Tax rate is also possible for sub-contractors if they have a gross payment status which means the contractor will pay them in full.
There is a 30% Tax deduction rate for individuals that are not correctly registered within the CIS industry (see below).
CIS Emergency Tax Rate?
Sub-contractors will usually be placed on this Tax rate if they have no UTR number. For most sub-contractors within the CIS scheme having a UTR number is essential for HMRC to verify the employee as self-employed and to be able to verify the amount of Tax they should pay.
Employees that do not have a UTR number are placed on emergency Tax because HMRC do not have any sufficient data about them and protects against Tax evasion. The 30% rate also allows for employees to be paid while in the process of waiting for their UTR number to be set up by HMRC.
How to Claim a CIS Tax refund?
If an individual suffers CIS deductions, then they must claim these back through their self-assessment Tax return. For individuals that have a gross payment status, there will be no Tax rebate but most likely a Tax liability.
What is the Average CIS Tax rebate?
The average Tax rebate is usually around £2,500 but CIS Tax refunds over £5,000 are also quite common. The amount of your Tax rebate depends on your own circumstances, how much you have earned and how much Tax deductible expenditure you can claim.
CIS Tax Return Tips
Claim your personal allowance
An individual’s personal allowance is simply the amount they can earn each Tax year Tax free. This sum can vary each year with the 2017/8 allowance being £11,850.
Claiming motor expenses/mileage
Regardless of the technical rules for claiming motor expenses or mileage if an individual claims legitimate allowable motor expenses this can help to maximise their CIS Tax refund.
Claim Capital Allowances
If an individual has purchased any tools, equipment, machinery etc that are strictly used for work then they can claim capital allowances which will also increase and maximise their CIS Tax refund.
It is also essential for individuals to ensure they claim for any legitimate business expenses if they want to ensure the best rebate possible. These expenses can consist of materials purchased, telephone costs, work clothing and hand tools.
Common CIS Tax return problems?
Failure to authorise their agent with HMRC
The result of this is that it prevents accountants and agencies to speak on behalf of the individual to help them with their Tax return. This is usually caused by the individual not returning authorisation forms that are usually sent out by accountants. Therefore it is essential to return the forms if you want an accountant to speak on your behalf to HMRC.
Failure to register as self-employed
This is another common problem that occurs with individuals. This usually occurs due to the person not applying for a UTR number which means that HMRC have no records of that individual’s income to decide the Tax they are required to pay.
The result of this is that they are placed on emergency Tax which is a 30% Tax rate. This can lead to further internal and external problems with the individual receiving less from their wage as well as having to apply and wait for a lengthy period of time to receive the UTR number.
This is another problem for CIS Tax returns as it prevents HMRC from being able to validate the information giving to the record they have of that particular individual. This problem usually occurs when clients of accountants fill out applications and either misspell important information or provide totally inaccurate data.
A national insurance number is a good example where this issue occurs. A client could give an accountant a number that is totally incorrect to the number that HMRC has for that individual. The result from this is that HMRC will not provide information to a clients accountant because they would be seen as untrustworthy due to having incorrect information.