The Construction Industry Scheme (CIS) is a set of rules put in place by HMRC for those working in the construction industry. It covers most types of construction work, from building and repairs to demolition and decorating. 

If you’re working as a contractor or subcontractor under CIS, understanding how deductions work is key to keeping your finances in check. This guide will walk you through the essentials of CIS deductions, including the allowable expenses you can claim to reduce your taxable income.

What are CIS tax deductions?

Under the Construction Industry Scheme, contractors are required to deduct a portion of a subcontractor's payment and pass it directly to HMRC. These deductions act as advance payments towards the subcontractor's tax and National Insurance contributions. The contractor becomes responsible for ensuring that these deductions are made before paying the subcontractor. 

This system helps HMRC ensure that taxes are collected throughout the year, reducing the likelihood of subcontractors owing large amounts at the end of the tax year. Subcontractors can later apply for a tax refund if the CIS tax deductions exceed their actual tax liability.

How CIS deductions work

When working under the CIS, the rate at which deductions are applied depends on whether the subcontractor is registered with HMRC. Registered subcontractors have 20% deducted from their payments, while unregistered subcontractors face a higher rate of 30%.

The Contractor's role

Contractors are responsible for applying these deductions before paying subcontractors. They pass the deducted amount to HMRC as an advance towards the subcontractor’s tax and National Insurance. To avoid the higher rate of deductions, it’s essential to register for CIS with HMRC.

Tracking your deductions

Subcontractors can keep track of these deductions through their payslips, often referred to as CIS statements. These show how much has been deducted, helping you stay on top of your finances and ensuring you're prepared when it's time to file your tax return.

Common expenses you can deduct as a CIS worker

As a CIS worker, you can deduct several common expenses to reduce your taxable income. These include the cost of tools and equipment needed for your work, travel expenses such as fuel and public transport, meals when working away from home, and even protective clothing like hard hats or boots. 

Deducting these allowable expenses lowers the amount of income you pay tax on, potentially saving you money. It's crucial to keep receipts and records of all expenses, as HMRC may require proof to verify your claims when filing your tax return. Proper documentation ensures you claim everything you're entitled to.

How to avoid CIS deductions

If you'd prefer not to have CIS deductions made in advance, you can apply for Gross Payment Status. This allows contractors to pay you in full without making tax deductions. Instead, you'll be responsible for paying your tax and National Insurance directly to HMRC.

To qualify, you'll need to meet certain criteria, including proving that your business is run properly and you keep your tax affairs up to date. This can give you greater control over your finances.

CIS tax deductions -FAQ

Can you claim back CIS deductions from previous years?

Yes, you can claim back CIS deductions from previous years if you've overpaid tax. When filing your tax return, HMRC will assess your earnings and deductions. If too much tax was taken, you’ll receive a refund. Ensure you have records of your CIS statements and relevant receipts to make the process smoother when submitting your claim.

Why am I being taxed 30% CIS?

You're likely being taxed at 30% CIS because you're not registered under the Construction Industry Scheme with HMRC. Unregistered subcontractors automatically face a higher deduction rate. To reduce this to 20%, you need to register for CIS. Once registered, your contractor will apply the lower deduction rate on future payments.

What happens if you don't deduct CIS?

If a contractor doesn’t deduct CIS when required, they could face penalties from HMRC. The contractor remains liable for the full amount that should have been deducted, meaning HMRC will still expect payment. It’s crucial for contractors to follow CIS rules properly to avoid fines or further tax liabilities.

Where can I find my CIS deductions?

You can find your CIS deductions detailed on your CIS statements, which are provided by your contractor along with your payment. These statements outline how much was deducted and sent to HMRC on your behalf. Keep these records safe, as they’ll be needed when filing your tax return or claiming back overpaid tax.

Get the CIS tax rebate you deserve

CIS tax can be tricky to navigate, especially when juggling deductions, allowable expenses and tax rates. Many subcontractors overpay tax and don’t even realise it. If you’ve had CIS deductions, you could be eligible for a CIS tax rebate, putting more money back in your pocket. 

Don’t miss out – use our CIS tax rebate calculator to get an estimate of how much you could be owed back from HMRC. Get in touch with RIFT today and take control of your tax situation!