How to Maximise Tax Savings for Construction Workers

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Did you know construction workers can reduce their tax liability through HMRC legislation under the CIS scheme?

The industry operates differently from other sectors for self-employed people, so make sure you’re not missing out. If you work in construction as a self-employed individual for a contractor, this applies to you.

Familiarising yourself with construction industry scheme legislation means you can maximise tax savings and claim certain expenses to make the most of your income.

How does the CIS scheme work?

In construction, a contractor is required to withhold tax on salary payments to self-employed workers or subcontractors. This differs from self-employed people in other sectors, who usually receive their wages as gross payments without any deductions.

The CIS scheme doesn’t apply if you work as an employee. As the contractor withholds tax through the CIS on subcontractors' wages, the documents you receive may appear similar to payslips received under the PAYE scheme. However, the two different statuses must never be confused.

Being self-employed doesn't entitle you to the same rights as regular staff members have. An employee has greater employment law protection than a subcontractor working for a contractor. This is why it’s particularly important to understand CIS legislation to receive the specific benefits to which you’re entitled.

Under CIS, tax deductions made from subcontractors’ wages are passed to HM Revenue and Customs as payments towards their income tax and National Insurance. The contractor is required by law to register for the scheme.

Although subcontractors don’t have to register, tax deductions will be taken from their wages at a lower rate of 20%, rather than 30%, if they have registered. Contractors can open an online CIS account to verify a subcontractor and file monthly tax returns.

What counts as construction work?

The CIS scheme defines construction work as building a permanent or temporary structure including civil engineering work such as bridges and roads; preparing the site; providing access and laying foundations.

It also includes dismantling and demolition work; all types of building work, including repairs and alterations; installing heating, power, lighting, water and ventilation systems; and cleaning the interiors of buildings following construction work.

You don’t need to register if you do certain jobs in the industry such as surveying and architecture; scaffolding hire with no labour; fitting carpets; delivering building materials; making materials used in construction; and running a canteen or other facilities on a building site.

Can construction workers claim travel expenses?

Many construction workers travel between job sites or to client meetings, which can add up in costs. There are certain types of travel expenses that they can claim to reduce their tax liability.

Mileage Allowance Relief makes up the biggest part of tax refund claims. It enables subcontractors to claim some tax back for mileage travelled when it’s essential for your employment. The rate is 45 pence per mile for the first 10,000 miles in a van or car and 25 pence per mile for anything above this. The rate for motorcycles is 24 pence a mile.

Other costs that can typically be claimed include train or tube fares, car parking charges and road tolls.

Can construction workers claim for tools and equipment?

When tools and equipment are used exclusively for work and are essential to your job, you can claim tax expenses for purchasing, repairing, maintaining and replacing them. Always keep receipts for purchases and repairs for your records for HMRC.

According to tax office guidelines, to be eligible for a tax refund for tools, you must have paid for them yourself and kept the receipts. If the contractor has provided any of them, they will not be eligible. You must be able to show that the tools are essential to your job.

What about professional fees and training costs?

If you have incurred professional memberships and training costs relating directly to the construction industry, these are both tax deductible, as they’re helping workers to remain up-to-date with training, compliant with health and safety legislation and competitive in the market.

Can construction workers claim home office costs?

Construction workers can claim general expenses due to the daily running of their business including public liability insurance, maintaining a home office and union fees. Under the CIS, home office claims depend on the amount of space and time dedicated to maintaining work related tasks from home.

You can claim home office expenses in full when they’re incurred exclusively for the purpose of running your business. If they arise for a dual purpose comprising business and personal expenditure, you can claim expenses only by identifying the specific amount used for work purposes. If you’re unable to do this, you can’t claim any expenses.

What should subcontractors consider when filing taxes?

Understanding the CIS scheme is of the utmost importance when filing taxes. Before you start working for a contractor, register with HMRC and then maintain accurate records - an essential part of filing tax returns.

As a subcontractor, you need to keep track of your income, expenditure and any deductions made under CIS rules. Hold onto receipts, invoices, bank statements and all financial documents, keeping accurate records to help you claim allowable expenses and reduce your tax liability.

File a self-assessment tax return annually, with the tax year running from 6th April to 5th April the following year. After the end of each tax year, the deadline for filing a tax return is 31st January. If you miss the deadline, you will be liable for financial penalties.

Working with an accountant

Construction industry tax regulations can be complex, especially with CIS, VAT schemes and allowable expenses, prompting many subcontractors to work with a certified CIS accountant such as DL Accounts to navigate the challenges.

As leading Cornwall accountants, we understand the complexities of this unique sector. We can steer you through the complicated financial aspects of your business and provide invaluable advice. Whether you’re a subcontractor, sole trader or limited company, we have tailor-made solutions for you.