How Does a Limited Company Claim Back CIS Tax Deducted?
Updated: Mar 29
What Is A CIS Tax Refund?
CIS stands for Construction Industry Scheme, which is a tax deduction scheme in the UK that applies to payments made to subcontractors who work in the construction industry. Under the CIS, contractors are required to deduct a percentage of the subcontractor's payment (usually 20%) and pay it to HM Revenue & Customs (HMRC) as an advance payment towards the subcontractor's tax and National Insurance contributions.
If a subcontractor has paid more tax and National Insurance contributions than they owe in a tax year, they may be eligible for a CIS tax refund. This can happen if the subcontractor has had too much tax deducted from their payments, or if they have overpaid their National Insurance contributions. The refund can be claimed by submitting a self-assessment tax return to HMRC, which shows the subcontractor's total income and the amount of tax and National Insurance they have paid.
It's worth noting that not all subcontractors are eligible for a CIS tax refund, and the amount of the refund will depend on the individual's circumstances. It's recommended that anyone who thinks they may be eligible for a CIS tax refund should seek professional advice from a qualified accountant or tax advisor.
The Process of Claiming Back Deducted CIS Tax
A limited company in the UK can claim back CIS (Construction Industry Scheme) tax that has been deducted from payments made to subcontractors by following these steps:
Register for CIS with HM Revenue and Customs (HMRC) by completing form CIS301. This will provide the company with a unique CIS reference number, which will be required for all CIS-related activities.
Keep accurate records of payments made to subcontractors, including the CIS deductions made. This can be done by using the CIS deductions worksheet provided by HMRC or by keeping a record of payments in accounting software. You should use form CIS132 to keep your own records.
Submit a monthly CIS return to HMRC, which includes details of payments made to subcontractors and the CIS deductions made. This can be done online using the HMRC's CIS online service or by completing a paper return.
Once the monthly CIS return has been submitted, HMRC will provide the limited company with a statement of account, which shows the CIS deductions made and any overpaid CIS tax.
If the limited company has overpaid CIS tax, it can claim a refund by completing form CIS307 and submitting it to HMRC. The form should include details of the overpaid CIS tax and the period for which the refund is being claimed.
If you want to claim a refund, you should include the amount of CIS tax deducted on your tax return and complete the appropriate section to claim a refund.
If the company has any issues with claiming a CIS tax refund, it can contact HMRC's CIS helpline for assistance.
It is important to note that the limited company will only be able to claim back CIS tax if it has registered for CIS and is up-to-date with its CIS returns and payments. In addition, the limited company will only be able to claim back CIS tax that has been overpaid, not CIS tax that has been correctly deducted. The company must also have all necessary documents and records.
Please NOTE: If you pay CIS deductions, you must claim them through your company's monthly payment plan. Don't try to claim it through your business tax return or you could be penalized.
Submit your monthly CCT submission to HMRC as usual.
Also, submit an employer payslip (EPS). Enter the total CIS discounts for the current year.
HMRC will take your CIS deductions from your PAY and Social Security tax liability. Pay the balance on the usual date.
If your company's PAY bill goes to zero for the period and you still have some CIS deductions that you couldn't claim, roll them over to the next month or quarter (in the same tax year). Tell HMRC in EPS you owe nothing.
To claim back CIS tax correctly, it is advisable to consult an accountant or tax advisor who can help ensure that all relevant information is provided and that the claim is made in a timely manner.
What Happens to CIS Deductions?
In the UK, CIS deductions are made from payments made to subcontractors under the Construction Industry Scheme (CIS). These deductions are made by contractors who are registered under CIS and are paid to HM Revenue & Customs (HMRC) as advance payments towards the subcontractor's tax and National Insurance contributions.
When a contractor makes a payment to a subcontractor under CIS, they are required to deduct a percentage of the payment as tax. The percentage deducted depends on whether the subcontractor is registered for CIS and whether they have provided their Unique Taxpayer Reference (UTR) number to the contractor. The deduction rates are 20% for subcontractors who are not registered for CIS, 30% for subcontractors who are registered for CIS but have not provided their UTR, and 0% for subcontractors who are registered for CIS and have provided their UTR.
The deductions made by the contractor are then paid to HMRC on behalf of the subcontractor. HMRC will credit these payments against the subcontractor's tax and National Insurance liability, and any excess will be refunded to the subcontractor after they have submitted their annual tax return.
It's important for subcontractors to keep accurate records of all their income and expenses, as well as any CIS deductions made by contractors, in order to complete their tax returns correctly and claim any refunds they are entitled to.
How Do You Record CIS Deductions?
In the UK, subcontractors who work in the construction industry and are subject to deductions under the Construction Industry Scheme (CIS) are required to keep accurate records of all their income and expenses, as well as any CIS deductions made by contractors.
Here are the steps to record CIS deductions:
When a contractor makes a payment to you, they should provide a payment and deduction statement that shows the amount of the payment and the number of CIS deductions made. Keep these statements in a safe place.
Record the details of each payment and deduction statement in your accounting records, either manually or using accounting software. This should include the date of the payment, the amount of the payment, and the number of CIS deductions made.
Keep copies of all invoices and receipts relating to your work as a subcontractor, as well as any other expenses you have incurred in carrying out the work.
Make sure your accounting records are up-to-date and accurate, and reconcile your records with the payment and deduction statements provided by contractors.
Use the information recorded in your accounting records to complete your self-assessment tax return, including the amount of your subcontracting income, any expenses you have incurred, and the number of CIS deductions made.
By keeping accurate records of your income, expenses, and CIS deductions, you can ensure that you complete your tax return correctly and claim any refunds you are entitled to. It's also important to keep these records for at least six years in case you are selected for a tax inspection by HM Revenue & Customs (HMRC).
How Do You Offset CIS Deductions?
In the UK, CIS deductions can be offset against a subcontractor's tax liability by including them on their self-assessment tax return.
Here are the steps to offset CIS deductions on your tax return:
Include your income from subcontracting on the self-employment pages of your tax return, along with any expenses you have incurred in carrying out the work.
Enter the total amount of CIS deductions made by contractors on the "CIS deductions" line of the tax return.
Calculate the tax you owe on your subcontracting income, taking into account any expenses and deductions you are entitled to.
Subtract the CIS deductions from the tax you owe. This will give you the amount of tax you need to pay or the refund you are owed.
If the CIS deductions made by contractors exceed your tax liability, you can claim a refund from HM Revenue & Customs (HMRC) after submitting your tax return. Alternatively, if you have other sources of income that are subject to PAYE tax, you may be able to use any excess CIS deductions to offset your PAYE tax liability.
It's important to keep accurate records of all your income, expenses, and CIS deductions throughout the tax year, in order to complete your tax return correctly and claim any refunds you are entitled to.
How Do You Account for CIS On an Invoice?
In the UK, subcontractors who are registered for the Construction Industry Scheme (CIS) and are subject to deductions must include certain information on their invoices to comply with the CIS regulations. Here's how to account for CIS on an invoice:
Include your business name and address, as well as the name and address of the contractor you are working for.
Include a clear description of the work you are carrying out and the amount you are charging for it.
Include a separate line item on the invoice for the number of CIS deductions being made by the contractor.
Make sure that the total amount payable on the invoice reflects the amount of your work less the CIS deductions being made.
If you are an unregistered subcontractor, you should include a statement on your invoice that says "CIS is being deducted from this payment at the rate of 20%". If you are a registered subcontractor, you should include your CIS registration number on your invoice.
Including the CIS deduction amount on your invoice makes it clear to the contractor how much tax they need to deduct and pay to HM Revenue & Customs (HMRC) on your behalf. It's important to ensure that your invoices comply with the CIS regulations in order to avoid any delays or errors in payments and to keep accurate records of all your invoices and payments received.
How Do You Account for CIS Reverse Charge?
Under the reverse charge, the recipient of the services (usually the contractor) is responsible for accounting for the VAT on the supply, rather than the supplier (usually the subcontractor). Here's how to account for CIS reverse charge:
Identify whether the supply of construction services is subject to the CIS reverse charge. This applies to supplies of construction services that are covered by the CIS, and where the recipient of the services is registered for VAT and is not an end user.
If the CIS reverse charge applies, you should not charge VAT on your invoice for the supply of construction services. Instead, you should indicate that the CIS reverse charge applies to the supply.
Include a separate line item on your invoice for the amount subject to the CIS reverse charge.
The recipient of the services (the contractor) must account for the VAT on the supply as if they had made the supply themselves. They should include the VAT on their VAT return as output tax and, if they are entitled to recover it, they should also include it as input tax on the same return.
The recipient of the services should also ensure that they have verified the subcontractor's CIS registration status and deducted the appropriate amount of CIS tax from the payment made.
It's important to ensure that you comply with the CIS reverse charge rules in order to avoid any errors or penalties. You should also keep accurate records of all your invoices and payments received to help you complete your VAT return correctly.