What is a CIS tax deduction?

CIS tax deductions play a key role in managing your tax as a subcontractor. In this article, we’ll walk you through how they work, how to keep track of them, and how to avoid overpaying. Plus, we’ll show you how claiming the right expenses can help lower your tax bill even more. ✨

What is CIS?

The Construction Industry Scheme (CIS) is for contractors and subcontractors in the construction industry. CIS work can include:

• Building work 🔨
• Repairs and decorating
• Civil engineering work ⚙️ 
• Demolition and dismantling
• Installing systems for ventilation, heating etc 💨

So, what is a CIS tax deduction?

A CIS tax deduction is an amount taken from your pay by contractors to cover your tax obligations. These deductions are sent straight to HMRC and count towards your annual tax bill. 

How do CIS tax deductions work? 

Contractors are required to withhold tax from subcontractors in line with the CIS tax deductions rules and tax rates:

• 20% is withheld if the subcontractor is registered under the CIS
• 30% is withheld if the subcontractor is not registered under the CIS

While it may seem like tax withholding at first, the money is really a pre-payment for your tax, and you can claim it back when you file your tax return. You can also lower your taxable income by claiming certain expenses, reducing what you owe even more.

Tracking your CIS tax deductions

When it comes to CIS tax deductions, keeping track of the money that’s been deducted from your pay is crucial. The good news? Subcontractors can easily monitor these deductions through their payslips, often called CIS statements.

Here’s what to keep an eye on:

• CIS statement/payslips: these show the amount of tax that’s been deducted from your payments.
• Total deductions for the year: make sure you’re aware of the cumulative deductions, so you know what will be offset against your tax bill.
• Taxable income: double-check that your deductions match your earnings. It’ll help ensure you’re not overpaying.

By staying on top of this, you’ll know exactly how much can be offset against your final tax bill.

What expenses can I claim? 

As a subcontractor, you can reduce your taxable income by claiming certain business expenses. Here are a few examples of what you can deduct:

• Tools & safety gear: if you buy tools, safety helmets, or other equipment for work, these can be claimed as CIS tax deductions. Just make sure it’s something you purchased specifically for your work.
• Car & van expenses: if you use your vehicle for work, you can either claim a portion of your vehicle expenses (fuel, insurance, road tax) or use the mileage allowance. If you use the vehicle more than 75% for work, you can claim 75% of the costs.
• Rent & home office: if you work from home, you may be able to claim a portion of your rent or bills. The key here is to only claim for the percentage of time you use your home for work purposes.
• Other expenses: don’t forget about things like your work phone bill, liability insurance, and accountancy fees (including our fee at TaxScouts). 

What you need to do before you can claim something

• You must be registered as self-employed
• You must also register for CIS
• Only claim for things used for work that you paid for out of pocket

If your total expenses are less than £1,000 per tax year, then you can claim the Trading Allowance, which is a tax-free allowance. It’s easy to do and you don’t need to keep your receipts. 🎉

You can also use our CIS Tax Rebate calculator to figure out the best option for you.

What if I don’t want to pay CIS Tax Deductions?

If you don’t want CIS tax deductions taken from your pay, you can apply for gross payment status. This means contractors will pay you the full amount without any deductions, and you’ll manage your own tax payments. To qualify for this status, you’ll need to meet certain criteria, including a clean tax record. 

If you’re organised with your tax payments and comfortable handling your own tax affairs, gross payment status could be a great option for you and allow you to keep more cash upfront!  💸

What If CIS tax deductions aren’t taken from your pay?

If your contractors don’t make the required CIS tax deductions, they could face penalties from HMRC. For you as the subcontractor, if the correct deductions aren’t made, you may end up with a larger tax bill when you file. It’s always worth double-checking that everything is being done properly to avoid any unwelcome surprises. ⚠️

The bottom line

CIS tax deductions are an important part of managing your tax obligations as a subcontractor. By staying on top of your records and claiming the right expenses you can make sure you’re not overpaying. 

Whether you’re opting for gross payment status or simply keeping an eye on your CIS statements, being proactive with your tax affairs can save you a lot of stress and potentially a lot of money. So, take control of your CIS tax deductions, keep your records tidy, and don’t forget to claim what you’re entitled to. You’ve earned it! 👏