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In order to be eligible for the CIS scheme you first need to ensure that you are actually working under self employed conditions. If you are only working for one main contractor then the law says they should be employing you on a PAYE basis. In reality this doesn’t often happen, as the “employer” will prefer to have the flexibility of hiring a self-employed individual. When working this way the “employer” is not liable for things such as sick pay or holiday pay. These are things you need to be aware of before you apply to join the CIS scheme.
In order to work under CIS you need to have a special CIS card. These can only be obtained by visiting your local tax office with two forms of ID. They will fill in a couple of forms with you and register you for the scheme. Click here to locate your local tax office.
In due course you will then be issued with the famous UTR number. You will need this number to work for any contractors and to identify you at the tax office. If you don’t have this number then the main contractors are obliged to deduct 30% tax from your wages as apposed to 20%. You will get credit for this tax paid though (see below).
Each month when you are paid by the contractor they will deduct tax from your wages. Only the labour element is liable to CIS tax so if you provide any materials this will not be included in the gross pay for tax purposes.
The contractor will then issue you with a payslip showing all their details, all your personal details and the gross income with the tax that has been deducted. These slips are really important as they will need to be used for your end of year tax return (see below). They also need to be kept for 6 years and will need to be produced in the event of an investigation by HMRC.
You should also be following the general rule of being self employed and keeping the receipts for business expenses. It’s a good idea to record these expenses somehow to make it easier at the end of the tax year.
The tax year ends on the 5th April and sometime after this date you will be issued with your self assessment tax return for the previous year. Your tax return needs to include all your sources of income for the relevant tax year, so if you went from PAYE employment to CIS self employment during the year both need to go on the tax return. This will also ensure that you get credit for all the tax you have paid.
When completing the CIS section of the return you need to work out what your taxable profit is for the tax year. This is achieved by deducting all allowable expenses from your income. Examples of expenses allowable to be claimed against tax are: business travel, materials, phone calls, protective clothing, tools and printing and stationery.
Tax is then worked out on the profit you have made, this is then compared to the tax you have paid during the year. If you’ve paid too much (which often happens to people on the CIS scheme) then you are eligible for a tax refund. If you haven’t paid enough then you owe the taxman some money!
If you don’t fancy tackling all this yourself then Taxdoctor provide a fixed fee CIS tax return service. We can even deduct our fee from the refund obtained so there’s no up front cost to you!
Find out more about how our CIS tax return service works
