Who Can Make a CIS Repayment Claim?

The Construction Industry Scheme (CIS) applies specific tax rules to payments made by contractors to subcontractors in the construction industry. Under the scheme, contractors generally deduct tax from subcontractors’ payments and pass those deductions to HM Revenue & Customs (HMRC). For some subcontractors, the amount deducted may be higher than the tax they ultimately owe.

In these circumstances, a CIS repayment claim may allow the subcontractor to recover tax that has been deducted but is not due.

What Is a CIS Repayment Claim?

A CIS repayment claim is a request to HMRC to return CIS deductions where the amount deducted exceeds the subcontractor’s actual tax liability.

Contractors normally make deductions from payments to subcontractors at the appropriate CIS rate. The deductions are treated as advance payments towards the subcontractor’s tax and National Insurance obligations.

When the tax year ends, the subcontractor’s overall tax position can be calculated. If the CIS deductions recorded against their income are greater than the amount they owe, they may be entitled to a repayment.

Who Can Claim a CIS Tax Repayment?

CIS tax repayments can generally apply to individuals working as self-employed subcontractors under the Construction Industry Scheme.

This can include sole traders and some individuals who carry out construction work through the CIS. The important consideration is whether CIS deductions have been made from payments received and whether those deductions result in an overpayment of tax.

Being registered under CIS does not automatically mean that a repayment is due. The final position depends on the individual’s income, allowable expenses, tax liability and the amount of CIS tax already deducted.

Why Might a Subcontractor Be Due a Repayment?

There are several reasons why a subcontractor may have paid more tax through CIS deductions than they ultimately owe.

One common reason is allowable business expenses. Self-employed subcontractors can incur costs associated with carrying out their work, and eligible expenses may reduce their taxable profit.

For example, depending on the circumstances, expenses could include certain tools, work-related travel, protective clothing or other costs incurred wholly and exclusively for the business.

The CIS deductions made during the year are calculated on payments from contractors, whereas the final tax liability is based on the subcontractor’s overall taxable position. This difference can result in an overpayment.

What Information Is Needed?

Accurate records are important when making a CIS repayment claim. Subcontractors should keep records of payments received and the CIS deductions taken from those payments.

Contractors normally provide documentation showing the amounts paid and deductions made. These figures should be checked against the records used when completing the relevant tax return.

Records of allowable business expenses are also important. Receipts, invoices, mileage records and other supporting documents can help establish the costs incurred during the tax year.

Keeping accurate records throughout the year can make it easier to calculate the correct tax position and identify whether a repayment may be available.

How Does the CIS Repayment Process Work?

For a self-employed subcontractor, CIS deductions are normally taken into account when completing their Self Assessment tax return.

The return calculates the subcontractor’s taxable income and tax liability for the relevant year. CIS deductions are then credited against the tax due.

If the deductions exceed the amount owed, the resulting overpayment may be available as a repayment, subject to HMRC’s checks and the individual’s circumstances.

It is important that the CIS figures reported on a tax return match the deductions actually made. Incorrect figures can delay the repayment or lead to further queries from HMRC.

Can Companies Claim CIS Repayments?

The rules can differ depending on how a construction business operates. Limited companies operating under CIS are subject to different tax arrangements from individual subcontractors.

Where a limited company has CIS deductions taken from payments, those deductions can generally be used against the company’s tax liabilities in accordance with the relevant rules. The process is therefore different from an individual making a repayment claim through Self Assessment.

The company’s accounting records and CIS deduction statements should be kept up to date so that deductions can be correctly accounted for.

What If CIS Deductions Are Missing?

Occasionally, the CIS deductions shown on a contractor’s records may not match the information held by the subcontractor. This can create problems when completing a tax return or calculating a repayment.

Subcontractors should check their records carefully and contact the relevant contractor if figures appear to be missing or incorrect. Where necessary, HMRC may also need to be contacted to resolve discrepancies.

How Long Does a CIS Repayment Take?

The time required for a repayment can vary. HMRC may carry out checks before releasing funds, particularly where the figures submitted require further verification.

Providing accurate information and ensuring that CIS deductions, income and expenses have been reported correctly can help avoid unnecessary delays.

A repayment is not guaranteed simply because CIS deductions have been made. The amount, if any, depends on the individual’s final tax position for the relevant tax year.

Understanding Your CIS Tax Position

A CIS repayment claim is relevant where tax deducted from construction payments is greater than the tax ultimately due. Sole traders and other self-employed subcontractors may be entitled to a repayment after their income, allowable expenses and CIS deductions have been taken into account.

Maintaining accurate records throughout the year and checking CIS deduction statements can help ensure that the correct figures are included when the tax position is calculated. Where there is uncertainty about eligibility or the amount that may be due, professional tax advice can help clarify the position.