CIS Tax Refunds: How Subcontractors Can Claim

Under the Construction Industry Scheme a contractor takes money off your payment and sends it to HMRC. That money is an advance payment towards your Income Tax and National Insurance, not a separate tax, and the way you get credit for it is through your tax return. Whether anything comes back depends on how the deductions compare with your actual bill for the year.

How much is deducted

Subcontractors are not obliged to register, but not registering costs 10 points of cash flow on every payment, which is recovered later rather than lost. Gross payment status removes the deduction altogether and has to be applied for, with business, turnover and compliance tests to meet and your own filings to keep up to date afterwards.

What the deduction is taken from

It is not taken from your whole invoice. The contractor starts with the gross amount and strips out everything that is not labour before applying the rate.

• VAT is excluded.
• Materials you paid for yourself are excluded.
• Plant hire for the job is excluded.
• Consumable stores are excluded.
• Fuel is excluded, other than fuel used for travelling.
• The cost of manufacturing or prefabricating materials is excluded.

Materials matter most here. If you cannot evidence what the materials cost, the contractor estimates it, and an estimate on the low side means more is deducted than should be. Itemise materials on the invoice and keep the receipts.

The statements you need

A contractor has to give you a payment and deduction statement within 14 days of the end of each tax month. Tax months run from the 6th to the 5th, so for the month running 6 May to 5 June the statement is due by 19 June. The statement shows the gross payment, the materials excluded and the amount deducted.

Those statements are your evidence. Without them you are claiming credit for deductions you cannot prove, and a missing month is money you do not get back. Reconcile every statement to your bank, month by month. If one has not arrived, ask for it, and keep asking. If a contractor has gone out of business, your bank records and invoices are the next best evidence and HMRC will usually work with them, but it is a harder conversation than producing the statement.

How the refund is worked out

There is no separate refund process. The calculation sits inside your Self Assessment return.

• Start with gross income, including the CIS payments before deduction and any other work.
• Deduct your allowable business costs to give taxable profit.
• Apply the personal allowance and the Income Tax rates.
• Add Class 4 National Insurance on the profit.
• Subtract the CIS deducted during the year, and any payments on account you made.

If the deductions exceed the liability, the difference is repaid. If they fall short, you pay the balance. A repayment is the common outcome because 20% is taken from turnover while tax is charged on profit after the personal allowance, but it is not automatic. Other income, a strong year, a student loan or the High Income Child Benefit Charge can absorb it entirely.

A worked illustration. A subcontractor is paid £48,000 gross for labour during the year, with £9,600 deducted at 20%. Allowable costs are £11,000, giving a profit of £37,000. Tax and Class 4 National Insurance on that profit come to a figure well below £9,600, so a repayment arises. Change the costs to £2,000 and the profit becomes £46,000, and the position is much closer. The costs are what move the answer.

The expenses that change the figure

Tools and small equipment, protective clothing and branded workwear, materials you bought yourself, van running costs or mileage at the flat rate, parking, public transport to temporary sites, plant and equipment hire, skips and waste disposal, phone and data, use of home for quoting and paperwork, accountancy fees, trade subscriptions, bank charges and business insurance are all deductible where the cost was wholly and exclusively for the work.

Larger purchases such as a van, a mixer or power tools go through capital allowances, and the annual investment allowance normally brings the whole cost off in the year of purchase. From the 2026 to 2027 tax year the mileage flat rate is 55p a mile for the first 10,000 business miles in a car or goods vehicle and 25p after that, and 24p for a motorcycle.

What is not claimable is just as important. Ordinary commuting to a single permanent site is not travel. Everyday clothes are not workwear. Client entertaining and fines are never deductible. And anything with a private element is apportioned, not claimed in full.

Limited companies are different

If you subcontract through a limited company, the company does not reclaim CIS deductions on a Self Assessment return. The deductions are set against the company's own PAYE, National Insurance, CIS and Corporation Tax liabilities through its payroll scheme, and any excess is repaid to the company after the tax year end. The mechanics, the timing and the paperwork are all different, and claiming company deductions on a personal return is a correction rather than a refund.

Timing and what HMRC does next

You can file as soon as the tax year ends on 5 April. Filing in April or May rather than in January is the single best thing you can do for the speed of a repayment, and it also means you know your position months before the payment date.

Most Self Assessment repayments are processed within a few weeks of the return being filed, but a repayment can be held for security checks, which is outside anyone's control. Make sure your bank details on the return are correct, because a repayment sent by cheque or held for verification takes considerably longer. There are time limits for claiming back overpaid tax, so an old year is worth dealing with sooner rather than later.

Mistakes to avoid

• Reporting net income instead of gross.
• Filing without all twelve statements reconciled.
• Claiming nothing for tools, travel or use of home, and paying tax on an overstated profit.
• Using a company's deductions on a personal return.
• Paying someone a percentage of the refund. The fee should not depend on the size of the figure being calculated.
• Assuming a refund is guaranteed. It is a difference between two numbers, and sometimes it goes the other way.