1.1 million self-employed construction and trades workers need to claim tax refunds
16th April 2018
If you're thinking it seems like everyone's self-employed in the building game these days, you're about half-right. The latest figures tell us that almost 1.1 million people working in construction right now are paid through CIS. That's actually a pretty big step up from where we were a year ago, representing an 8% rise on the previous statistics.
For some people, that sounds like a fairly healthy thing – people setting out to be their own bosses. However, not everyone working under the Construction Industry Scheme actually chose to go down that road. In fact, a fair number of them don't even realise they're on it until it's already too late.
Why are workers on CIS paid differently?
The Construction industry Scheme was set up to tackle tax dodging in the building trade. Under the CIS system, 20% of a subcontractor's pay is passed on to HMRC directly. It's supposed to be an advance payment against tax and National Insurance. In reality, it all too often means people are losing out because they don't know how to claim that back each year themselves or they're using accountants who aren't specialists in the construction industry.
Why is the government looking at the number of people on CIS?
At a time when skilled hands are in short supply, there's a major shake-up happening in construction. We're all waiting for the other Brexit boot to drop, for one thing. It'll probably be a while before we see the full picture on that, of course. It's pretty clear it won't help much in pulling us back from that skills shortfall cliff edge, though.
On top of that, we've got the ongoing crackdown on bogus self-employment. There's a draft bill in the works at the moment that's aimed squarely at the “gig economy”. Basically, people working on a short-term, job-by-job basis can find themselves open to exploitation. The new bill is looking at punishing companies that deliberately dodge their obligations as employers by treating their workforce as self-employed.
Employment status is a messy subject, particularly with things like casual labour and zero-hours contracts gumming it up. The bill would shift the burden of proof to the company instead of the worker. Businesses would need to demonstrate that their workforces are genuinely self-employed, with stiff penalties for getting it wrong.
What does being on CIS mean for workers?
When you're self-employed, you give up some basic employment rights like sick leave and paid holidays. In some cases, people being paid through payroll companies are finding their pockets picked with “management fees”. Others end up footing the bill for their employers' own National Insurance contributions. It can be a mess to untangle, but employment legislation slowly seems to be catching up at last.
The building trade makes up for 7% of the entire UK labour market. That's 2.6 million people overall, with well over 40% of them in London and the South East. Of those, about 42% are self-employed, whether they want to be or not. In a lot of cases, it turns out they'd really prefer the security of full-time employment. The JIB, for instance, reports that around 84% of electricians they've surveyed would rather be employed directly.
Squaring the books with HMRC when you're a CIS worker is essential. Being your own boss is no bad thing in itself, as long as you go into it with your eyes open. Making it pay means taking advantage of the best of it, while minimising the drawbacks. Your paid holidays, sick leave and pension rights may be out of the window, but you do control your own rates and hours. If you aren't getting everything you're owed by the taxman, though, you might still be losing out overall.
In addition, being CIS means that you have to complete your own self assessment tax returns each year and there is other paperwork to complete and different HMRC rules to follow, depending on how exactly you run your business and whether you take on any subbies at any time.
Why is it important for CIS workers to claim their tax refunds?
When you're registered for CIS, you're losing literally thousands of pounds to the taxman out of your pay before you get it. If you don't understand the system, it's all too easy to end up leaving your cash on the taxman's table. Every single person on CIS has not received their personal allowance so should be claiming that back before any additional allowable expenses are even taken into account.
As the UK's leading tax rebate and tax return experts, RIFT has been helping construction workers since 1999. Whatever legislation changes and upheavals are in store for the building game, we'll be here to fight your corner. Get in touch to see how we can help you tackle the taxman.