Improve your understanding of CIS repayments with this step-by-step guide. Get all the information you need to complete your CIS reclaim.
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 suffered can be reclaimed from HMRC. We will show the options available on how to reclaim your CIS refund.
Subcontractors (Limited Companies only) can offset any CIS repayments due against any amounts owed to HMRC in PAYE, NI and CIS. (n.b If they are also contractor, then 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.
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.
Typically businesses suffering this high level of CIS deductions should register for gross payment status.
In the examples above we showed how to offset CIS deducted against employment taxes including PAYE / NI and CIS withheld from subcontractors.
Many subcontractors don’t have employment taxes, so how do they receive the CIS repayment?
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 can be claimed. It can be offset against other taxes or repaid to your bank account, which we will go through below.
Subcontractors that trade as self-employed will complete the CIS reclaim on their personal tax return.
When completing the self-employment pages of the tax return, there is a box to enter ‘total CIS deductions taken from your payments by subcontractors’. On the current version of the short tax return this is box 38.
The amount entered will automatically be allocated against your personal tax liability for that tax year. If your CIS reclaim is higher than the tax liability a repayment will be received from HMRC.
Limited companies can’t just enter the CIS repayment on the company tax return. That option is only available on a personal tax return.
To offset your CIS suffered against corporation tax, the company must make a separate claim. This is done as follows.
The first thing to do is to make sure that the tax year has ended. The tax year ends 5th April so don’t try to make a reclaim before the 6th April. This can then lead to mistakes within HMRC systems and subsequent delays in processing.
The easiest way to make the CIS reclaim is to complete the repayment online.
The information needed to make the online claim includes:
Company name
PAYE reference number
Company unique tax reference (UTR)
The amount reclaimable (this can be an estimate)
Accounting period to offset the CIS against
In our experience the reclaim takes between 4 weeks to 8 weeks to be approved by HMRC.
Subcontractors (Limited Companies only) can reclaim the CIS suffered against a VAT liability.
The easiest way to do this is to make the repayment claim online.
The information needed to make the online claim includes:
Company name
PAYE reference number
Company unique tax reference (UTR)
Company VAT registration number
The amount reclaimable (this can be an estimate)
VAT return period to offset the CIS against
We recommend that CIS reclaims are offset against any tax liabilities first. In our experience these claims are processed quicker by HMRC than bank refunds. However if a bank repayment is preferred this can also be claimed online.
The information needed to make the online claim includes:
Company name
PAYE reference number
Company unique tax reference (UTR)
The amount reclaimable (this can be an estimate)
Bank Name, account number, sort code
We recommend that CIS suffered is reclaimed online. However both the repayment and tax offsets can be claimed by post.
You will need to write a letter to HMRC, which includes all of the above details. For example an offset against corporation tax claim will need to include Company Name, PAYE ref, UTR, estimate amount and the accounting period to offset against.
You don’t need to include any calculations, however if the reclaim doesn’t match HMRC calculations they will request further information.
The address to send the letter to is:
CIS
PT Operations North East England
HM Revenue & Customs
BX9 1BX
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.
Subcontractors with large repayments should consider gross payment status. Not only is the admin reduced but no business would choose to pay other taxes in advance and then wait for a repayment.
For further information see the HMRC website.
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