[Closed] CIS Construction Industry Scheme and tax

I was never CIS, but my understanding is that the company takes 20% at source as if you were an employee and pays it to HMRC so you don't have to. You still need to do a tax return though.
I always thought it was a way of HMRC getting the tax faster

No you do not have a personal tax allowance under CIS. He will be taxed straight away from the first penny. Still needs to file a self assessment tax return but can claim back anything he's overpaid at the end of the year of course.

Tax evasion used to be rife in the self employed building trade so CIS is the government's lazy way of tackling it by taking it off you at the source.

Cheers, but it looks like they take it from the first penny he earns, rather than after his personal allowance 😕

No you do not have a personal tax allowance under CIS. He will be taxed straight away from the first penny

Thanks, so how can it be fair that there is no personal allowance? What's the benefit for the worker?

Done plenty of CIS work over the years. It was bought in a number of years due to the number of subbies working in construction who 'forgot to pay tax'.

Essentially your lad will be working self employed, but rather than him getting paid 100% and then pay his tax when he does his tax return - his employer pays 20% at source, and he'll claim back any tax owed when he does his tax return (still get standard allowance)

Under CIS, do you benefit from the personal tax allowance of £12570

Yes, He'll pay regardless from the outset, but at the end of the year he can claim it back. Look at it as a savings pot,

Thanks, so how can it be fair that there is no personal allowance? What’s the benefit for the worker?

Claim it back at the end of the tax year; he's still entitled to it, but the government don't trust him enough to give him it up front!

Phew, thanks all.

There is a personal allowance. He’ll have 20% deducted at source by whoever he is working for and paid to hmrc on his behalf.

then when he does a tax return he’ll have a tax bill to pay which will almost certainly be less than the cost tax he’s had deducted in the tax year so will get a refund. His personal allowance is included in the fa. Return.
Treat it like a crappy savings scheme.

Yup. As others say. Lad registers with CIS so his UTR is linked to the scheme. (If he doesn’t, he’ll be deducted at 30% not 20%.)

He gets paid -20% and his employer pays that to HMRC on his behalf & gives him a receipt.

When he does his tax return he declares the CIS payments and since it’s taken from all his money once you factor in the tax-free allowance alongside any costs he enters on his return, he will get a rebate. So it is kinda like a savings scheme he can’t access. Also saves the self employed persons trap of neglecting to allow for his tax bill through the year.

Treat it like a crappy savings scheme

One with no interest that gives his "employer" the cash to play around with all year until he has to pay it to HMRC, some saving scheme...

WARNING: Your lad should always ensures he fills in that he is self-employed on his tax return. Failure to do so will remove his eligibility for any future COVID support schemes.

gives his “employer” the cash to play around with all year

The "employer" has to complete a return and pay every month to HMRC. Failure to do so will get them in bother with Mrs S and her mob of brigands.

The saving part comes with the lump sum payment of the taxed personal allowance. Could well be the basis of a pension scheme (take professional advice on this though).

Still need to pay nis thou if I remember.
Claim for tools ect.
No pension or sick pay.
Unless it's changed since I did it but it was a while ago

Don’t forget to factor in class 2 and maybe class 4 national insurance also

One with no interest that gives his “employer” the cash to play around

No the “employer” has to pay CIS to HMRC the following month.

One thing to watch for- if he only works for this guy HMRC may want him classed as an employee.

I used to work for a construction company & we had a PAYE audit. One of the things that triggered this was that their software had tracked subbie returns to our CIS returns which lists payments by subbie UTR. for a few of them we were their only source of income for the tax year so they tried to argue they were a proper employee

As noted above, he will be liable for National Insurance, which is calculated when the tax return is done. I got caught out one year, I hadnt had many expenses, and thought the overpaid tax would pay for the NI, it didnt, I had to find £1k to pay it.
Make sure he keeps all his receipts, and claim anything allowable on his tax return.

You can’t be self employed and just work for one company.
It sounds like the guy wants to get out of paying holiday and sick pay. I would also make sure that he receives his CIS certificate for every payment as that is his proof that the main contractor has stopped his tax. Without it, and if the guy hasn’t paid the 20% to HMRC then they will pursue him for unpaid tax. The contractor is legally obliged to provide the payment certificate.
CIS is only applied to the labour portion of any invoice not materials or VAT.
To be self employed you have to work for several people, work when you want to, have financial liability for the success or failure of your business. Working for one person doesn’t comply with those.
I would be wary as if the guys work slows down he will just tell your lad not to come in any won’t have to pay him.

Self-employed - if you answer yes to one or more of these questions, you’re likely to be self-employed:
 can you hire someone to do the work, or take on helpers at your own expense?
 can you decide where to provide the services of the job, when to work, how to work and what to do?
 can you make a loss as well as a profit?
 do you agree to do a job for a fixed price regardless of how long the job may take?
If you cannot answer yes to any of the questions above, you are still likely to be self-employed if most
of your answers to the following questions are yes:
 do you risk your own money?
 do you provide the main items of equipment (not the tools that many employees provide for themselves) needed to do the job?
 do you regularly work for a number of different people and require business set up in order to do so?
 do you have to correct unsatisfactory work in your own time and at your own expense?

Taken from the HMRC