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What is the Construction Industry Scheme (CIS)
The Construction Industry Scheme (CIS) is used by HMRC to collect income tax from subcontractors in the construction industry.
You’re eligible to register for the scheme if you’re a self-employed construction worker. If you’re a full-time employee, the scheme does not apply to you. You can check with your company to confirm which bracket you fall under.
In the past, self-employed construction workers (subcontractors) were paid in cash. The difficulties in keeping track of this led HMRC to create the Construction Industry Scheme in 1971, allowing them to tax subcontractors’ earnings as soon as they were paid out by their contractors.
Why register for CIS if you work as a subcontractor in construction?
If you’re registered for the scheme, you will have only 20% tax deducted from your salary, rather than 30% that is deducted for those who aren’t registered.
What is the CIS rebate?
The 20% deduction usually works out as more than you owe in tax, so subcontractors can claim back a CIS tax rebate from HMRC in the April of the following tax year. For most CIS construction workers, the average refund is about £2,500.
Example of how CIS works:
Big Woodworks Ltd hires John Carpenter on their site as a subcontractor. Every month John is owed £1,500 pounds for his work.
Every month the company pays £300 (20% of the £1,500) to HMRC as John’s taxes
The company sends a CIS statement or payslip to John as proof
The company pays the remaining £1,200 to John as payment for his work.
How do CIS refunds work?
In the example above, John’s annual income was £18,000 (£1,500 * 12).
John technically owes HMRC £2,370.20 (£1,230 Income tax + £1,015 national insurance).
However, throughout the year Big Woodworks Ltd paid £3,600 in taxes on John’s behalf!
John is now due a refund.
Construction Workers can quickly calculate how big your CIS tax rebate is and what expenses you can claim. Sometimes you can claim expenses even without receipts – use this calculator to see if you qualify.