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If you work in construction, there are two ways to get paid.
If this just looks like a random gathering of letters, worry not. Scroll down and we’ll explain what each of them means and what difference they make on the way you pay tax.
PAYE stands for Pay As You Earn. What this means in practice is that you pay tax directly from your salary each month. It’s deducted based on your exact earnings and calculated using your tax code.
When you’re employed or you work under an umbrella company, you’re usually paid via PAYE. And this means that you also get other employee benefits such as holiday and sick pay, along with benefits offered by certain employers e.g. private healthcare.
Your tax code is made up of numbers and letters and it’s the reference that your employer/HMRC uses to work out how much money they need to take out of your pay to cover tax.
CIS stands for Construction Industry Scheme. It’s basically a scheme started by HMRC to make sure that construction workers pay the correct amount of tax.
If you’ve not registered for CIS and received your UTR number, your contractor deducts 30% tax from your pay, which is almost always more than you owe.
But when you’re being paid under the CIS scheme, you’ll have 20% deducted from your pay each month. This deduction, however, isn’t based on a tax code so it often means that you still end up paying too much tax at the end of each tax year.
As a result, you claim a tax rebate at the start of the new tax year (6th April). The amount that you can claim back depends on how much you worked during the year and how much you overpaid.
It’s usually around £2,000.
We’ve put together a table to show you the pros and cons of being paid via an umbrella company on PAYE, CIS and being self-employed (i.e. you’re just paid via an invoice and have to calculate and deduct tax yourself).
Take a look at the comparison 👇
|CIS||Umbrella company PAYE||Self-employed|
|File a tax return||✅||❌||✅|
|Claim back expenses||✅||❌||✅|
|Option to be paid gross||✅||❌||✅|
|National Insurance deducted automatically||❌||✅||❌|
If you decide that you want to switch from the CIS part way through the tax year, this is completely fine. All you need to do is get in touch with HMRC and get your records updated. You can also consult with your accountant (ahem, like TaxScouts) who will make sure all your calculations are correct.
But if you do this, bear in mind that you’ll still need to file a tax return for the part of the year that you were being taxed through the CIS. You’ll still get a rebate if you’re due one based on your earnings but it will most likely be less than usual.
If you plan on continuing work under PAYE, you might want to ask your accountant to de-register you as self-employed. This will make sure that HMRC don’t expect you to complete a tax return each year.
Well, it’s your lucky day. Get your CIS tax return filed by an accredited accountant for just £149, all in.
Due a tax refund? We’ll take payment from your rebate for £239 if you prefer not to pay in advance. Our CIS accountants have specialist knowledge of construction worker tax needs including what expenses you can claim, how to maximise your profit, and more.
Manage your self-employed finances in one place with 10/10 bookkeeping tools. And all for free – forever and always.