As a Construction Industry Scheme (CIS) worker, it’s important to understand your tax obligations to avoid underpayment at the end of the financial year. Generally, a standard deduction of 20% is applied to registered subcontractors’ payments for tax under the CIS. For those not registered, a higher rate of 30% is applied.
In addition to the CIS deductions, you also need to consider National Insurance Contributions (NICs). As a self-employed worker, you’ll be responsible for Class 2 and Class 4 NICs. For the 2023/2024 tax year, Class 2 NICs are charged at a weekly flat rate, if your profits exceed a certain threshold. Class 4 NICs are calculated as a percentage of your profits over a certain threshold – typically 9% on profits between £12,570 and £50,270 and 2% on profits above that.
To ensure you are adequately covered for both tax and NICs, it is advisable to set aside approximately 25%-30% of your income. This amount can vary based on your circumstances, so consulting an accountant for personalised advice is highly recommended. This preparation helps prevent unexpected tax liabilities and ensures compliance with HMRC obligations.