CIS Tax Deductions

If you’re a self-employed subcontractor, it’s essential that you are aware of CIS (Construction Industry Scheme) tax deductions. Before you are paid for your new job, you will be asked by your contractor for your UTR (Unique Tax Reference Number). This refers to a 10-digit number which you would have received from the HMRC upon registering as self-employed.

Why Do You Need This?

Your UTR will be used by the contractor to find your information via the CIS system. Found on any letters that you have received from HMRC, it’s essential that you located this before starting a new job. After locating your details online, the contractor will inform the HMRC about the monthly payments that they make to you. Before making the initial payment to you, they need to ensure that you are registered. 

The CIS deduction rates are as follows:

1.) 20% For Registered Self-Employed Subcontractors

After payment, you will have tax deducted from you at a level of 20%. A flat rate, once it appears on your payroll you will know that the contractor managed to find you on the CIS system.

2.) 30% For Unregistered Self-Employed Subcontractors

If you notice that you have been taxed by 30%, it’s a sign that you aren’t registered on the CIS system. Alternatively, it could be that you didn’t give your employer your UTR. if you notice this, it’s essential that you contact HMRC to inform them of your self-employment (alongside the fact that you are a CIS subcontractor). 

3.) 0% Tax

This is known as gross payment. During this stage, no tax has been deducted. The only way that you can be paid gross is if you meet specific standards. You can do this through passing special tests – such as meeting your past tax obligations or a minimum turnover. 

This will only affect subcontractors which have asked HMRC to specifically be paid ‘without a deduction of tax’. Reviewed annually, HMRC will ensure that you are continuously meeting the requirements needed for 0% tax.

It’s essential that you pay your tax monthly to the HMRC. Without paying this, you could find yourself in trouble in the long term.

How Your Contractor Makes A CIS Tax Deduction

It’s always good to understand exactly how your contractor makes a CIS tax deduction. Beginning with the gross amount which appears on your invoice, they will take away the following expenses:

  • Any VAT that has accrued
  • Any materials and equipment that has been purchased
  • Any fuel that has been used (discounting travelling)
  • Equipment which was specially purchased for the job
  • Manufacturing materials that have been purchased

When your employer has taken all of these off, they will then deduct the CIS percentage rate which is set by the HMRC from the remaining money. You’ll then receive the net amount in your invoice.

About CIS Mortgage Advice

At CIS Mortgage Advice, we specialise in helping CIS subcontractors find the right mortgage, where they might otherwise be refused by a mainstream lender.  

Contact us today and one of our mortgage advisers can give you an initial Fee Free, no-obligation telephone assessment. 

During this initial call, we will calculate how you may borrow based on your CIS day-rate before tax, instead of using an average of your last two year’s self-employed income which most banks will ask for. 

Subject to providing us with evidence of your income and identification we can even obtain an instant provisional lending agreement.

If you’ve only been a subcontractor, or self-employed, for less than a year, then our mortgage advisers can even help you get a mortgage without having to complete 2 or 3 years of accounts.

Give us just five minutes of your time, and we can advise you how much you may be able to borrow on a mortgage.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE