If you are a subcontractor (and you’re not trading through a partnership or limited company) you are self employed and therefore should be registered for self assessment. Under self assessment, you will need to send HM Revenue & Customs (HMRC) a tax return each year.
You should also consider registering for the Construction Industry Scheme (CIS) if you work for a contractor. Under CIS, the contractor will deduct 20% from your payments. If you don’t register for the CIS scheme, the contractor will deduct 30% from your payments instead.
The contractor will pay over the deductions to HMRC and these amounts will count towards your tax and National Insurance bill.
At the end of the tax year (6th April to the following 5th April), you should send HMRC a tax return which shows:
- the full amounts on your invoices as income (or from the statements you’ve had from the contractor)
- any deductions contractors have made in the ‘CIS deductions’ field
You can also claim for any business-related costs you’ve incurred such as tools, equipment, hire, materials, vehicle expenses, professional subscriptions and accountancy fees. Make sure you keep your receipts.
HMRC will work out your actual tax and National Insurance bill and then take off the amounts your contractor deducted from you.
If you still owe tax after this, you’ll need to pay it by 31st January following the end of the tax year.
If you’re due a tax refund, HMRC will pay the money back.
Your tax return is due by 31st January following the end of the tax year.
CIS subcontractors are often in a refund position, because the 20% or 30% deduction is usually higher than the actual tax due once it is calculated. Although you have until 31st January to file your tax return, you can file your return any time after 6th April. The sooner you file your return; the sooner you could get a tax refund and even if it turns out you owe HMRC, you do not need to pay the amount due until 31st January. You’ll just have plenty of time to budget and save for your tax bill.
Your local TaxAssist Accountant would be happy to get your registrations in order and prepare and file your tax returns for you. Please pop in to your local office to find out more.
By Jo Nockels
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.