to ask if anyone knows much about CIS tax deductions?

[CrispySock]

Brother has been working in construction as a subcontractor not long and just received his first ‘tax calculation’ after self assessment return for 2019.... has paid 20% tax through CIS deductions (under 50k earnings), has about 3k in allowable expenses for fuel so was expecting some money back, but instead has a tax bill for £84 to pay on top of the deductions already made for that year through CIS.

I thought CIS deductions included class 2 and 4 national insurance, or do they not? Is this what the £84 is for? The letter isn’t very clear at all.

Thanks in advance.

Who did his tax return OP? Was he PAYE this tax year at all?

Also 50k turnover with 3k expenses is 47k earnings so it pushes him into the higher rate tax bracket so its likely that his personal allowance has been eaten up by the 40% tax due on over 37k or whatever the rate is for the year of return. And if he has expenses of 3k he only gets the 20% of it back that he would have paid from his cis deduction at source, not the 3k.

Has he been paying NI? Because that’s separate to tax. My DH pays it monthly I think.
Also, depending on his trade I bet he could put more into his tax return, honestly a good accountant is worth their weight. My DH regularly gets a couple of grand back on his tax return because of all the bits they do and advise him to claim.

@Frouby

Who did his tax return OP? Was he PAYE this tax year at all?

He did it. No not PAYE at all.

@Frouby

Also 50k turnover with 3k expenses is 47k earnings so it pushes him into the higher rate tax bracket so its likely that his personal allowance has been eaten up by the 40% tax due on over 37k or whatever the rate is for the year of return. And if he has expenses of 3k he only gets the 20% of it back that he would have paid from his cis deduction at source, not the 3k.

He earnt 43k. he was thinking he’d get the 3k expenses back not just 20% of it...

@StopMakingATitOfUrselfNPissOff

Has he been paying NI? Because that’s separate to tax. My DH pays it monthly I think. Also, depending on his trade I bet he could put more into his tax return, honestly a good accountant is worth their weight. My DH regularly gets a couple of grand back on his tax return because of all the bits they do and advise him to claim.

His contractor takes 20% for HMRC before they pay him - he thought this included class 2 and 4 NI so he doesn’t understand how he still owes money to them.

I thought you only paid 20% tax until 50k ?

He gets back the tax he’s paid on his expenses which accounts to 20%. He doesn’t get the 3k back.

No, the deductions don’t include national insurance.

No he gets tax relief on his expenses, not just the whole expense refunded!

That makes more sense! Ok so the money he owes is because of NI!

Assuming that we are dealing with an individual not a company, any CIS deductions at 20% will first be set off against profits. Any excess will be set off against class 4 NICs liabilities. See section 62(2) of the Finance Act 2004.

He needs an accountant OP, I did my own tax returns when S/E because I was nowhere near paying tax, but DH is a subby and although I could fill in the online form I wouldn't know what he can and can't claim for and would either risk overclaiming or underclaiming. Ours costs £200 a year and is worth every penny.

Thank you all!

CIS is effectively PAYE for the Construction Industry. As such, it provides a simple way for deductions to be made from people who could previously fall under the radar (be paid cash). If he has been deducted 20%, you need an accountant to offset any expenses (fuel etc) and work out what his Income Tax Liability + National Insurance contributions are this year. As you get a personal tax allowance (approx £12,500 earnings tax free), and I assume he has business expenses such as fuel, he should be able to claim a CIS refund. It's quite a backwards system and can get quite confusing. I hope that has helped explain it a little.

I’m a tax accountant and I would recommend he gets an accountant to do his tax return for him. You’re right he isn’t a higher rate earner.

In short he’ll have paid

£12,500 @ 0%
£30,500 @ 20% therefore owe £6,100 in income tax. (Based on net income (total less expenses) of £43k. I couldn’t tell from your posts whether £43k was total earned or after deducting £3k expenses).

He would then owe Class 2 at £3 per week so £156 assuming he worked the whole year and class 4 NIC at 9% of £34,368 (his net income of £43k less the threshold of £8,648 so class 4 contributions totalling £3,093.

He’d then need to deduct the total tax owed (income tax and both NIC) from the tax he actually paid in the year. If the number is positive then he owes money to HMRC, if the number is negative then he is due a refund.

the above are v quick calculations and based on a lot of assumptions so please do get him to hire an accountant but just a brief idea of how to calculate it.