Under CIS, your contractor deducts tax from your pay before it reaches you. The standard rate is 20%, or 30% if you're not registered with HMRC. But mistakes happen and some contractors deduct more than they should. If that's happening to you, here's what it means and what you can do about it.

How Does CIS Deduction Work?

Your contractor deducts a fixed percentage from your pay. This fixed percentage is determined by your registration status with HMRC. If you're registered and verified, the rate should be 20%. If you're not registered or can't be verified, it goes up to 30%. Anything above that is wrong.

The first thing to check if you think too much is being deducted is whether you are actually registered for CIS. If you're not, getting registered should be the immediate priority. It brings your deduction rate down from 30% to 20% from that point forward.

To register, you'll need your UTR number. If you have that, you can call the CIS helpline directly on 0300 200 3210. HMRC will read out a declaration to you over the phone and register you on the call. It's straightforward and doesn't take long.

It's also important to understand that deductions should only ever apply to the labour element of your invoice. If your work involves materials, the cost of those materials should be reimbursed in full with no deduction applied. If your contractor is deducting tax from your materials costs as well as your labour, they are deducting more than they need to.

How Would You Know If Too Much Is Being Deducted?

Your CIS statement should show your gross pay, the deduction amount, and your net pay. If the deduction percentage doesn't match your registration status, something is off. Similarly, if your payments include materials and those costs are being included in the amount the deduction is applied to, that's worth querying.

Why Does It Happen?

Contractor error, incorrect verification, applying the wrong rate, or administrative failures. Sometimes it's genuinely a mistake. Sometimes the contractor hasn't verified the subcontractor properly with HMRC. In the case of materials, it's often simply that the contractor hasn't separated the labour and materials elements before calculating the deduction.

What Can You Do About It?

The first step is raising it with the contractor directly. If the wrong rate is being applied, they can correct it going forward. If materials are being included in the deductible amount, again, that's something they should fix immediately.

Any deductions that have already been over-applied will be recovered through your tax return at the end of the year, where everything is reconciled against your actual tax liability. You won't lose that money, but you will have to wait until your return is submitted to get it back.

What We Can Do

If you're not sure whether the right rate is being applied, or you think you've been over-deducted and want to understand what you're owed, get in touch. We'll take a look and let you know where you stand.

Contact us here.