CIS is a UK tax scheme targeting the construction sector. It requires contractors to deduct tax from payments to subcontractors and remit it to HM Revenue and Customs (HMRC).

Contractors and subcontractors operating in the construction industry in the UK must register for CIS to comply with its tax deduction and reporting requirements.

Under CIS, the tax deducted from a subcontractor’s payment is contingent on their HMRC registration status. There are two deduction rates: Registered Subcontractors face a 20% deduction rate (excluding VAT and material costs) if they’ve been verified by the contractor with HMRC, while Unregistered Subcontractors experience a higher 30% deduction rate (excluding VAT and material costs) until they are verified by the contractor. Contractors must verify subcontractor employment status with HMRC to determine the applicable deduction rate before making payments.

CIS penalties can range from financial penalties for late returns to potential legal consequences for deliberate non-compliance, making compliance crucial for businesses in the construction industry.

HHM ensures that businesses operating in the construction sector are fully compliant with CIS regulations, minimising tax liability, avoiding penalties, and optimising tax planning to enhance financial efficiency and transparency.

If you’re a subcontractor who has had tax withheld by a contractor under the Construction Industry Scheme (CIS), you’re eligible to seek a refund for any excess tax paid. However, the process for requesting a refund depends on the structure of your business:

For Sole Traders: If you are a sole trader, you can claim a refund by completing your Self Assessment tax return, which should detail your income, expenses for the tax year, and the total CIS deductions made by the contractor. Any overpaid tax will be calculated, and you’ll receive a refund for the surplus amount.

For Partnerships: If you are partnership, each partner should claim their respective share of CIS deductions on their individual Self Assessment tax returns. The partnership’s income, expenses, and CIS deductions should be allocated based on the profit-sharing agreement among partners.

For Limited Companies: Limited companies can offset the CIS deductions against their Corporation Tax liability. This involves including the total CIS deductions in the Company Tax Return (CT600) as a tax credit. If the deductions surpass the Corporation Tax liability, a refund can be requested from HMRC. Alternatively, these deductions can be used to offset any PAYE and National Insurance obligations owed by the company.

Irrespective of your business structure, maintaining accurate records of payments received and CIS deductions made by contractors is crucial. These records serve as evidence for your refund claim and demonstrate your adherence to CIS regulations.