Construction Industry Scheme (CIS) workers – are you expecting a tax refund?

I have claimed the SEISS grants. How will this affect my tax return?

SEISS grants are taxable and count as income for Class 2 and  4 National Insurance contributions (NIC). If you received any of the first three SEISS grants in the 2020/21 tax year, you need to report these in your 2020/21 Self Assessment tax return. We have published separate guidance on exactly how to do this.

CIS workers normally receive their income after deduction of 20% (or sometimes 30%) withholding tax. However, SEISS grants are paid gross (without deduction of any tax at source). This means that you need to pay tax on the SEISS grants through Self Assessment to HMRC.

You will also owe Class 4 NIC on your gross CIS income and SEISS grants if together these exceed the Lower Profits Limit (£9,500 for 2020/21). For 2020/21, Class 4 NIC is paid at 9% on amounts between the Lower Profits Limit and the Upper Profits Limit (£50,000 for 2020/21) – and at 2% above that.

The overall position is worked out when you fill in your Self Assessment tax return. The fact you owe tax on the SEISS grants may mean that your refund is lower than you expected, or it may mean that you are not due a refund at all and instead you owe an amount to HMRC.

I usually have a tax refund but now have to pay tax. Is this correct?

Most CIS workers have a tax refund because the 20% (or sometimes 30%) withholding tax that is deducted from their income does not take into account the personal allowance or any other deductible amounts. The personal allowance for 2020/21 was £12,500 and this alone is worth £2,500 in tax relief for a basic-rate taxpayer. This means CIS workers normally overpay tax during the year and receive a tax refund after the end of the tax year.

The amount of the income tax refund is reduced by the amount of Class 2 and Class 4 NIC due, but the overall result is still usually a refund.

The difference for 2020/21 is that the refund you would otherwise be due is reduced even further by the tax due on SEISS grants received in the year. If the tax on the SEISS grants is greater than the refund you would otherwise get, you will end up having to pay tax to HMRC. You would need to pay the tax due by 31 January 2022.

What are payments on account and do I need to pay them?

Payments on account are a feature of the Self Assessment system which mean that certain people must pay tax in advance of the normal payment due date. If you have received SEISS grants in 2020/21, you may have to make payments on account for the tax year 2021/22.

You only need to make payments on account for 2021/22 if certain conditions are met:

1. your tax bill (excluding Class 2 NIC) for 2020/21 exceeds £1,000; and
2. No more than 80% of your tax bill for that year (2020/21) was deducted at source.

CIS workers who receive SEISS grants in 2020/21 may meet both conditions depending on the overall amount owed to HMRC and the proportion of CIS income in 2020/21 (which has tax deducted at source) to non-CIS income (like SEISS grants, which do not have tax deducted at source).

Example

Clive works on a construction site and is normally paid under the Construction Industry Scheme. He usually gets a refund when he completes his Self Assessment tax return.

For 2020/21, he met the eligibility criteria for the first three grants of SEISS and claimed all of them. HMRC paid him the following:

Clive also earned £8,000 in CIS income during 2020/21 when he was able to work, which had £1,600 of withholding tax deducted at source under CIS.

When Clive completes his 2020/21 Self Assessment tax return, the tax calculation shows the following:

Clive meets the conditions to be required to make payments on account for 2021/22, because his tax bill (excluding Class 2 NIC) for 2020/21 exceeds £1,000 and an insufficient proportion of that was deducted at source. The payments on account calculated are £538.50 each and due on 31 January 2022 and 31 July 2022.

The total amount payable on 31 January 2022 is therefore £1,235.60 + £538.50 = £1,774.10.

It is possible to claim to reduce your payments on account if you think you will owe less in the following tax year. However, to work this out you will need to estimate your tax liability for 2021/22. If you have claimed the fourth and fifth grants under SEISS, then you will need to include these grants in your 2021/22 tax return in a similar way. You may owe tax for that year, also.