The Construction Industry Scheme (CIS) plays an important role when it comes to managing tax obligations for self-employed individuals working in the construction industry. Under this scheme, contractors and subcontractors need to file a CIS self-assessment tax return to declare their income and tax deductions each year.
Whether you’re a seasoned contractor or a CIS newbie, understanding and avoiding common mistakes is key to ensure you complete your CIS tax return accurately. Even small mistakes can lead to costly consequences like penalties or missed opportunities for tax relief.
We’ve made this guide of 10 common errors contractors make when filing their CIS self-assessment tax returns and given tips for how you can avoid making the same mistakes.
1. Failure to register for CIS
If you identify as a main contractor – a sole trader, limited company, or partnership who employs subcontractors – then you must register for CIS. Operating under CIS without proper registration is incredibly risky and could result in penalties and HMRC looking into your business. Contractors must be CIS-registered so that they can verify subcontractors they hire and ensure they are paying CIS deductions.
On the other hand, if you’re a subcontractor, it’s your choice whether you register for CIS. Being CIS-registered does come with its fair share of benefits, however, such as being taxed at 20% rather than 30% and gaining a better industry reputation which in turn leads to eligibility for more jobs.
How to avoid it: make sure you’re registered for CIS as soon as you start working in construction as registering early guarantees you’re compliant from the get-go. You can find out more about how to register here.
2. Incorrectly Reporting CIS Deductions
One of the most frequent errors that crop up time and time again is not reporting CIS deductions accurately. Contractors who fail to accurately report on tax deducted from their subcontractors (either by overreporting or underreporting amounts), open themselves up to receiving penalties for their discrepancies.
How to avoid it: contractors should always keep a careful record of all payments and deductions made to subcontractors. Subcontractors can help make sure deductions are reported correctly by verifying that the CIS payment vouchers provided by their contractor match deductions made.
3. Neglecting to Keep Detailed Records
Under CIS, contractors are required to keep detailed records of all payments made to subcontractors, as well as the corresponding deductions. It’s super important to have good record-keeping as failing to do so could lead to errors in your tax return. The same goes for subcontractors; proper documentation of things like invoices, payslips, and deductions is the only way to make sure you’re filling out your CIS self-assessment tax return accurately. Plus, it’ll make it easier to see if you’re due a tax rebate.
How to avoid it: make sure you store all relevant records of business expenses in an organised manner where you can easily access them. You could also consider using bookkeeping software to keep track of receipts, invoices, and other paperwork.
4. Not Claiming All Eligible Business Expenses
As a contractor or subcontractor, you’re entitled to claim certain business expenses to help you reduce your taxable income. That could be anything from materials and tools to travel costs and protective clothing. Being clued up on what you can claim for could make a big difference to the amount of tax you end up paying.
How to avoid it: Keep track of every expense related to your work, no matter how small, and do some research on the latest tax rules to ensure you’re claiming everything you’re entitled to.
5. Not Reviewing Your Gross Payment Status
CIS allows subcontractors who demonstrate a good track record of tax payments to apply for Gross Payment Status (GPS), meaning your contractor will pay you in full and no deductions are made from payments. This CIS tax rate effectively becomes 0% under GPS, with subcontractors responsible for paying their tax and National Insurance (NI) at the end of the tax year. However, some subcontractors forget to regularly review their status with HMRC, which can result in deductions that shouldn’t have been made.
How to avoid it: If you qualify for GPS, review your status annually to ensure it’s still accurate. It’s also important you update your information with HMRC if you’ve had changes in your tax circumstances.
6. Reporting Only Net Income
Sometimes, subcontractors make a mistake on their return by only reporting net income received after CIS deductions, instead of the full amount invoiced. Remember, income should be reported in full and CIS deductions reported separately.
How to avoid it: subcontractors should always report the full income they invoiced the contractor, not just the amount they received. This ensures that CIS deductions are correctly reflected and accounted for, leading to a more accurate tax calculation.
7. Missing the Tax Return Deadline
If you haven’t already, now is the perfect time to mark your calendar with the all-important CIS self-assessment tax return filing deadline! It sounds trivial, but construction workers are caught out by this far too often. The deadline for submissions is midnight on the 31st of January each year. Failing to submit on time can result in penalties, even if the tax you owe is paid before the deadline.
How to Avoid It: set up reminders well in advance, either digitally or on paper. You can also file your return early to avoid the last-minute rush. Remember, online filers have until January 31st, but it’s always a good idea to finish early to avoid unexpected complications.
8. Miscalculating Your Tax Liability
Some contractors struggle with calculating their total tax liability, especially if their income varies throughout the year or they don’t have a clear understanding of how CIS deductions should factor into their overall tax bill. A simple miscalculation could lead to paying too little or too much tax.
How to Avoid It: if you’re unsure about your tax calculation, consider using online tools to help you. Better still, an accountant can calculate your tax liability and double-check your income, expenses, and deductions, to ensure you’re applying the correct tax rate.
9. Not Staying Updated with Changes to Tax Rules
It’s no secret that tax laws and CIS regulations are always changing and evolving. Staying up to date with the latest is the best thing you can do to make sure you don’t miss out on key changes that lead to avoidable error on your return.
How to Avoid It: stay up to date with the latest tax legislation by regularly checking HMRC’s official website or subscribing to relevant newsletters. If you don’t have time to keep up with changes (such as deduction rates or qualifying expenses) then working with a tax professional who specialises in CIS is ideal as they can keep you informed.
10. Trying to Go It Alone Without Professional Help
If you’re worried about anything to do with your tax return – making mistakes, not understanding tax laws, unsure about which tax relief to claim – it could lead to stress and inaccuracies on your paperwork.
How to Avoid It: getting professional help may be the way to go. Aside from helping you with paperwork and making sure you avoid penalties, getting support from a tax expert will save you a lot of time and hassle. They can guide you through the process, ensure accuracy, and help you minimise your tax liability.
Conclusion
Filing a CIS self-assessment tax return doesn’t have to be complicated, but it does require attention to detail and careful planning. By avoiding these common mistakes, you can streamline the process, reduce your risk of penalties, and ensure that your tax return is accurate and compliant with HMRC rules.
If in doubt, don’t hesitate to get professional advice — it’s always better to be safe than sorry when it comes to filing your CIS tax return.
