A practical guide to tax and self-assessment for those in construction

If you are self-employed in the UK construction industry, or part of the Construction Industry Scheme (CIS), then getting your head around tax and self-assessment is key to keeping your business on track. Whether you are a fresh face in the sector or a seasoned pro, the world of tax can be a bit of a minefield, especially when you throw CIS into the mix, writes Patricija Gavele from Pie, a company dedicated to helping working people break free from tax burdens.

With this in mind, we have produced a free guide which covers the essentials of tax for the self-employed in the construction industry and highlights the important bits for those working under CIS, but we must first look at the basics.

1. What is Self-Assessment?

Self-assessment is HMRC’s way of collecting income tax from the self-employed and certain business owners. Unlike employees who have tax automatically deducted through PAYE (Pay As You Earn), self-employed individuals need to report their income and expenses directly to HMRC. Your tax bill is then calculated based on this information.

The tax year typically runs from 6th April to 5th April the following year and the deadline to file your self-assessment tax return online is 31st January. Filing on time is crucial to avoid fines and ensure you pay the right amount of tax.

2. What is CIS (Construction Industry Scheme)?

The Construction Industry Scheme (CIS) is a special tax system for subcontractors in the UK construction sector. Under CIS, contractors deduct a portion of your pay and pass it to HMRC as an advance on your tax and National Insurance contributions.

CIS was brought in to tackle tax evasion in the construction industry, making sure subcontractors pay the right amount of tax. If you’re registered with CIS, 20% of your pay will be deducted for tax. If you’re not registered, this jumps to 30%, so it’s worth signing up.

3. Key Aspects of Self-Assessment for the Self-Employed

As a self-employed worker, sorting your own tax is part of the deal. Here’s how self-assessment works for you:

• Income Tax: You’re taxed on your profits (income minus expenses). For the 2024/25 tax year, the basic rate is 20% on earnings between £12,570 and £50,270, with higher rates for those earning more.
• National Insurance Contributions (NICs): Self-employed workers pay Class 2 and Class 4 NICs. Class 2 is £3.45 per week, and Class 4 is 6% on profits between £12,571 and £50,270 and a further 2% on profits over £50,270 for 2024/25.
• Allowable Expenses: You can reduce your tax bill by claiming business-related expenses, such as tools, materials, travel, office costs and insurance.

4. How CIS Affects Your Tax Return

If you’re a subcontractor under CIS, the tax your contractor deducts counts as an advance on your tax bill. Here’s what you need to know:

• Tax Deductions: Contractors must deduct 20% (or 30% if you’re not registered) from your pay. These deductions count toward your overall tax liability.
• Filing Your Return: When filing your self-assessment, report your total earnings before deductions, then separately report the CIS deductions. HMRC will offset these against your tax bill, and if you have overpaid, you will get a refund.

5. Common Mistakes to Avoid

Filing taxes as a CIS worker can be tricky, and mistakes can lead to paying too much or too little tax. Here are some common pitfalls:

• Not Registering for CIS: If you don’t register, you’ll be taxed at 30%, which could mean overpaying. Registering is simple and can save you a chunk of money.
• Forgetting to Claim Expenses: Many self-employed workers miss out on allowable expenses. Make sure you claim for things like mileage, tools, and protective clothing.
• Failing to Report CIS Deductions: If you don’t report CIS deductions, HMRC won’t know how much tax you’ve already paid, potentially leading to double taxation.
• Missing Deadlines: The deadline for online self-assessment is 31st January. Miss it, and you’ll face a £100 penalty, which increases the longer you delay.

6. Claiming CIS Refunds

A lot of subcontractors overpay tax due to CIS deductions, especially if they have significant expenses. If you’ve overpaid, you can claim a refund when filing your self-assessment. This refund can be substantial depending on your earnings and expenses, so make sure you file on time and include all your deductions.

7. VAT in the Construction Industry

If your turnover exceeds £90,000, you need to register for VAT. Many construction businesses use the VAT Flat Rate Scheme, which allows you to pay a fixed percentage of your turnover. For construction businesses, this can be 9.5%, 14.5% or 16.5% depending on the type of construction being carried out. Note that under the "Domestic Reverse Charge" rules, VAT for certain services is accounted for by the customer, not the supplier.

8. Keeping Records

Accurate record-keeping is a must when it comes to taxes. Make sure you hang on to:

• Invoices and Receipts: Keep a clear record of all income and business expenses.
• CIS Statements: Contractors must give you CIS statements showing payments made to you and the tax deducted—these are crucial when filing your return.
• Bank Statements: HMRC may ask for proof of your business transactions, so it’s wise to keep your bank records organised.

9. Getting Help

If this all feels a bit much, you’re not alone. Filing taxes can be stressful, especially with the added layer of CIS. That’s where Pie comes in.

At Pie, we understand how overwhelming tax returns can be, especially for self-employed workers and CIS subcontractors. Our free service takes care of everything from filing your self-assessment to claiming any tax rebates you are owed. Here’s how we can help:

• Tax Return Filing: We handle the entire process, ensuring everything’s done on time and error-free.
• Tax Rebates: If you’ve overpaid on your CIS deductions, we’ll ensure you get your money back.
• Expert Support: Our tax professionals specialise in self-employed and CIS returns, so you know you’re in safe hands.

All of this is completely free - no hidden fees, just simple, stress-free tax filing for hard working construction workers like you. For more information, head over to Pie Tax.

With the right tools and knowledge, managing your taxes as a self-employed worker in the construction industry doesn’t have to be overwhelming. Understanding CIS and using services like Pie can help you stay on top of your finances, leaving you to focus on the job at hand.