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CIS program
The Construction Industry Scheme (CIS) is a tax system whereby a construction contractor deducts part of the money owed to their subcontractor. The amount deducted is then paid directly to HMRC and credited to the subcontractor’s tax and social security, which is actually paying taxes in advance. The amount withheld depends on whether the relevant subcontractor is enrolled in the CIS programme. If the subcontractor is not registered, a deduction of 30% is usually made. If he is registered, then the deduction is usually 20%. In any case, the amount of tax withheld at the start of the financial year will usually be higher than what needs to be paid simply because this amount will not include the personal tax allowance to which every UK taxpayer is entitled. As a result, many subcontractors in the construction industry will receive a tax refund due to this overpayment.
What can I report on my CIS tax return?
You can claim any work-related expenses that HMRC considers tax-deductible on your CIS tax return. If, as a builder in the CIS programme, you pay for something you only use for work, then you are generally entitled to tax relief.
HMRC has very detailed rules covering all situations, including subcontractors participating in the CIS programme.
How much of my income is taxable?
You will only pay tax on your profits, which are calculated using the following equation:
Revenue – Expenses = Profit.
The more legitimate expenses you declare, the lower your tax will be.
Are there any work-related expenses that I can’t claim tax relief for?
You can only claim relief for wholly and solely business expenses. You cannot claim relief for personal use or items of higher value classified as capital. You can claim capital allowance as a separate part of your tax return. Posting imaginary expenses leads to very large fines.
What expenses are allowed?
- Employee expenses: employer’s social security taxes, subcontractors, employee/staff bonuses, employee wages, pensions, employment agency fees.
- Fees for hiring professionals: including architects, accountants, lawyers, and surveyors.
- Travel, accommodation and meals away from home, tickets for any transport (airplane, bus, taxi, train). Car/minibus costs include parking, fuel, roadside assistance fee, repairs, servicing, insurance, and vehicle registration.
- Office/administrative expenses: including stationery, postage, office supplies, computer software, printing, telephone and fax, internet and mobile phone.
- Union membership fees, subscriptions to professional organizations or journals in your work area.
- Financial expenses: insurance policy (business direct), bank/business loan interest payments, credit card fees, bank fees and overdraft, leasing and hire purchase interest, and other financial payments.
- Debts included in circulation that will not be collected are written off.
- Utility costs for energy, tariffs, rent, insurance, and security. This includes working at home, where a separate workplace is set aside, and it is possible to measure the size of it and how much time it is used for work purposes.
- Goods and raw materials, production costs for resale.
- Online advertising, free samples, mail, newspaper/catalogue ads.
- Pre-tax payments to construction subcontractors.
- Maintenance costs of business premises, equipment, and small consumables (some equipment, tools).
What are NOT allowable expenses?
- Employee expenses: your salary/other payments, social security or pension contributions, and any payments for work outside your business.
- Legal aid fees for settlement of fines imposed for illegal conduct/activity or tax discrepancies.
- Legal costs for the purchase of large equipment or property.
- Any personal travel, travel from home to one place of work, initial purchase of vehicles.
- Office/administrative expenses for new equipment (computer, phone, etc.), personal use percentage.
- Professional membership fees: money given to political parties, charities or clubs.
- Finance costs: actual repayment of loan/overdraft/other financing, all recoverable costs related to insurance claim situations.
- Bad debts, not included in circulation, any debt related to fixed assets.
- The initial purchase of business premises, the portion of utilities that can be classified as personal use
- Business entertainment, such as event banquets and entertainment for suppliers/customers.
- Depreciation of goods and equipment, anything bought for personal use.
- Depreciation of equipment value, loss on sale of property.
- Maintenance of premises extension/remodelling of any non-business-related repair works.
- Casual clothing, even if there is a dress code, but no uniforms are worn.
- Rent or mortgage payments for your home.
- Daily food and drink (unless you work away from home).
What does dual use mean?
Dual use means that you use something for both business and personal use. In this case, you can claim relief for the relevant part of the allowable business expenses. Different expenses are subject to different detailed regulations. Making a mistake on your CIS tax return can result in a fine from HMRC, so only make a reasonable claim.
What evidence do I need to support my claim?
Different operating expenses have different supporting evidence requirements. Usually, this is just the documentation that you handle during your workday.
You can keep both paper and electronic records, which must be kept for at least 6 years. HMRC accepts:
- Account-invoice.
- CIS income statements.
- Travel journals.
- Cash books.
- Bank statements.
- Purchase receipts.
What happens if you declare false expenses?
If HMRC investigates your activities and finds that you have negligently or fraudulently claimed incorrect or false expenses, you may be fined.
The penalty would be 100% of the unpaid taxes plus interest. This amount is increased to 200% if HMRC decides it is a fraud case.
Arguments such as “you were only doing what the accountant/other third party advised/encouraged you to do” are unlikely to change the inspectors’ judgment.
In the worst-case scenario, HMRC can initiate a tax evasion case, which could lead to a prison sentence of up to seven years and/or an unlimited fine if found guilty.
Construction industry contractors should think twice before declaring false expenses to avoid hefty fines and possible jail time.
What CIS tax refund services do you offer?
Thanks to our CIS tax return experts, you will not have to bother yourself and your tax benefit will be maximized. You just need to provide us with some information and sign a few forms. We can then complete your CIS tax return on your behalf and even liaise with HMRC.
Our CIS tax refund service is excellent value for money, and we also maintain exceptional customer service.
You can get started immediately and use our fee calculator, fill out the form below, or go to the contact page and we’ll be happy to help you.
