Through the CIS (Construction Industry Scheme) subcontractors pay a flat rate of tax through their contractors. , normally 20%,on what they charge for their labour , irrespective of the amount. As a result some subcontractors may be paying too much tax.
What is the CIS Annual Tax Return?
When you are paying tax through the CIS, you need to submit annual tax returns just like every other self-employed person in the UK. The tax return is a full statement of everything you have invoiced within a tax period, plus information on any other income such as rent from properties. It also itemises every claimable expense you or your business have incurred.
Usually after submitting an annual tax return you will make a single tax payment, at the end of January. If your business earns more than a specific amount in a single year, though, you will be required to pay every six months. However, in many cases CIS subcontractors are pleasantly surprised when they discover that they are due a tax refund
Complying With The Law
The annual tax return is a legal requirement for all self employed subcontractors. If you fail to complete an annual tax return you are liable to fines by HMRC. The deadline for submitting an annual tax return is January 31st for the tax year preceding.
There are fines for late submission which increase the longer you delay. Penalties may also apply for not filling in the tax return correctly; omitting some relevant information or income could be seen as attempted tax evasion even if it is a genuine mistake.
It is therefore essential to make sure your annual tax return is completed accurately and submitted on time every year to avoid penalties.
Expenses You May Be Able to Claim Back on Your CIS Annual Tax Return
The annual CIS tax return is your chance to ensure that you pay the correct amount of tax by claiming all eligible expenses to be offset against your income. As a result it is likely that you may receive a tax rebate so it is in your interest to file your tax return correctly.
Expenses which CIS contractors can claim back include: purchase or hire of tools and equipment, laundry of work clothes, PPE, maintenance of tools and plant, insurance for vehicles and premises if any, public liability insurance and employers insurance if you employ staff, subscriptions to trade associations or professional bodies, public transport to work , hotels if working away from home. work related telephone charges, etc. Information on what expenses an be claimed is on HRMC website, though it may not be easy to find.
In addition to the expenses listed above, there may be certain allowances a self-employed subcontractor may claim on his or her CIS annual tax return. Vehicular travel for business purposes, for example, entitles you to an amount of money per every mile driven.
The tax office used to encourage that fuel receipts for all business travel be kept and reclaimed. Now it is preferred that the vehicle user keeps a mileage record and claims for a mileage allowance – which goes towards the maintenance of the vehicle as well as its fuel consumption.
Where you own and drive a vehicle only and specifically for work, different tax rules will apply. Find out more by asking your accountant or tax advisor.
How to Get the Most Out of Your CIS Annual Tax Return
Apart from avoiding penalties, the CIS tax refund is one of the biggest reasons for ensuring your CIS annual tax return is filed correctly. With an average of £322 million overpaid in tax every year, there are a lot of CIS subcontractors not being refunded the amount they are entitled to.
This is normally due to a lack of knowledge: if you don’t know what you are allowed to claim for, then you can’t claim all the expenses you are entitled to. While the tax office will tell you everything you can claim back if you ask, HMRC doesn’t exactly go out of its way to help CIS subcontractors with their expense claims.
It may be easier to engage the services of a professional tax adviser to file your CIS annual return and claim any refund you may be due on your behalf. You’ll pay a commission or standard fee for this service but at least you can be sure your tax return will be completed correctly and that you will get back all the tax refund you may be entitled to. What’s more, the services of a professional tax advisor are also tax deductible!