How do subcontractors reclaim the CIS repayments which they have had deducted?
Businesses which are registered as 20% net subcontractors receive less income from the contractor. They don’t receive the full amount on the sales invoice as they suffer CIS deductions. This also affects subcontractors who are not registered and pay the higher rate of 30%.
CIS tax is not an additional tax and therefore the deductions can be reclaimed from HMRC.
CIS repayments offset against PAYE
Subcontractors can offset any CIS repayments due against any amounts owed to HMRC in PAYE, NI and CIS. (n.b CIS may be owed to HMRC if they have subcontractors).
Example: A business who is a contractor and a subcontractor has a PAYE & NI liability of £5,000. They are also contractors so let’s say they’ve deducted £3,000 in CIS from their payments to their subcontractors. They would normally be due to pay over £8,000 electronically by 22nd of the month. However if they are 20% or 30% tax subcontractors they can reduce the £8,000 liability by any CIS tax they have suffered.
Typically a business the size I’ve given in the above example would be registered for gross payment status. Therefore they would not suffer CIS deductions. They would then pay the £8,000 over to HMRC in full.
Example extended: Should the CIS suffered by the subcontractor exceed the PAYE/NI & CIS due to be paid they will carry this forward to the next month. Using the example above let’s say the business suffered CIS deductions of £10,000. They would therefore reduce the £8,000 liability to £Nil and pay nothing to HMRC this month. They would also carry forward the £2,000 excess to offset against next months liability.
CIS repayments offset against other taxes
HMRC don’t make CIS repayments during the year. If at the end of the tax year (5th April) the business still has unrelieved CIS tax deductions the repayment will be made then. Alternatively it can be offset against other taxes due. This includes the corporation tax liability (Limited company) or the individuals personal tax liability (soletrader). Offsets should not be assumed and must be requested.
CIS repayments conclusion
HMRC reconcile all CIS repayments to check that the figures reclaimed are correct. Businesses must have the supporting documentation. This includes the CIS payment and deduction statements received from their contractors as they may be requested by HMRC.
It is therefore important that subcontractors keep on top of the admin. Failure to do so could result in reduced CIS repayments of tax.
At Patterson Hall Chartered Accountants we are experts within all aspects of the Construction Industry Scheme. We have produced an ultimate guide to all things CIS with many user friendly helpsheets and examples. Take a look at our CIS Accountants guide.
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