Most subcontractors working under the Construction Industry Scheme have two things in common. They work hard and they overpay tax. Not because the rules are unfair, but because claiming every legitimate expense, filing the return correctly, and chasing HMRC for money already owed takes time and knowledge that most people on a construction site simply do not have spare. A good cis accountant changes that picture significantly but even before professional help enters the equation, understanding how CIS actually works puts you in a far stronger position than most subcontractors currently occupy.
This guide covers everything: how deductions work, why refunds happen, what expenses you can claim, how to file correctly, and what to do when things go wrong.
What Is the Construction Industry Scheme?
HMRC created CIS to tackle tax evasion in the construction sector, where cash-in-hand payments and unreported income were historically widespread. Under the scheme, contractors deduct tax directly from a subcontractor’s payment before it reaches their bank account, passing it to HMRC on their behalf.
If you work in construction as a self-employed individual bricklayer, electrician, plumber, carpenter, groundworker, roofer and you are paid by a contractor rather than employed directly on PAYE, CIS almost certainly applies to you. The scheme covers most construction activities: building, demolition, repairs, decorating, installation of systems, and civil engineering work.
Deduction Rates Explained
Most registered subcontractors have 20% deducted from the labour element of every payment. Unregistered subcontractors face a 30% deduction rate, a significant penalty for not registering that costs real money every month. Gross Payment Status, available to subcontractors who meet HMRC’s turnover and compliance criteria, allows payment in full with no deduction but qualifying for it and maintaining it requires a clean compliance record.
The critical point most subcontractors miss is that CIS deductions are not your final tax bill. They are advance payments toward a liability that gets calculated properly at the end of the tax year. That calculation often reveals you have paid too much which is why CIS refunds are so common.
Why So Many Subcontractors Overpay Tax?
The 20% deduction applies to labour income throughout the year. HMRC collects it month by month, regardless of what your actual tax liability will be once allowable expenses are factored in.
By the time the Self Assessment return is completed, taxable profit is usually considerably lower than gross income because legitimate business expenses have been deducted. The Personal Allowance reduces the taxable amount further. The tax actually owed is then compared against what has already been deducted under CIS, and the difference comes back as a refund.
The size of that refund depends entirely on how thoroughly expenses are claimed.
What Expenses Can CIS Subcontractors Claim?
HMRC’s basic rule is straightforward: expenses must be incurred wholly and exclusively for business purposes. In practice, that covers a wide range of costs that subcontractors either forget to claim or wrongly assume are not allowable.
Travel and Vehicle Costs
If you use a van for work, the running costs fuel, insurance, servicing, repairs, road tax are claimable against income. Mileage can be claimed instead at the HMRC approved rate of 45p per mile for the first 10,000 miles and 25p thereafter, if you prefer not to track actual costs. Parking charges and tolls on work journeys are allowable. Accommodation costs when working away from home overnight are claimable, provided the stay is genuinely work-related and temporary.
Tools, Equipment and PPE
Power tools, hand tools, safety equipment, PPE, hi-vis clothing, work boots all allowable provided they are used for work. Repairs to existing tools are claimable too. The key is keeping receipts. Claiming a £400 power tool without evidence is the kind of thing that causes problems if HMRC asks questions.
Professional and Business Costs
Public liability insurance, accountancy fees, CSCS cards, trade memberships, relevant training courses, mobile phone costs (for the business proportion), and any software used for invoicing or record-keeping all qualify. These are expenses most subcontractors either miss entirely or underestimate.
Common Expenses at a Glance
| Expense | Usually Claimable? | Important Notes |
| Work boots | Yes | Must be safety or work-specific |
| Hi-vis clothing | Yes | Workwear only not everyday clothing |
| Van purchase | Yes | Capital allowances apply |
| Fuel costs | Yes | Business journeys only |
| Accommodation | Yes | Temporary, work-related stays |
| Meals on site | Restricted | Only when working away overnight |
| Mobile phone | Partial | Business use proportion only |
| Power tools | Yes | Keep receipts |
| Training courses | Yes | Must be relevant to current trade |
| Public liability insurance | Yes | Fully claimable |
| Accountancy fees | Yes | Fully claimable |
| CSCS card | Yes | Industry registration cost |
How CIS Refunds Are Actually Calculated?
The calculation follows a logical sequence that is worth understanding before filing.
Start with total income received from contractors during the tax year. Deduct all allowable business expenses to arrive at taxable profit. Apply the Personal Allowance currently £12,570 to reduce the taxable amount. Calculate the Income Tax and National Insurance owed on the remaining figure. Compare that against the CIS deductions already paid throughout the year. The difference is either a refund or an additional payment.
Real-Life Refund Examples
Bricklayer earning £32,000. After claiming £6,000 in travel, tools, and insurance, taxable profit is £26,000. After the Personal Allowance, tax is owed on £13,430. At 20%, that is roughly £2,686 in Income Tax plus Class 4 National Insurance. CIS deductions of £6,400 (20% of £32,000) have already been paid. Refund in this scenario: around £2,500 or more.
Electrician earning £48,000. With £9,000 in legitimate expenses, taxable profit drops to £39,000. After the Personal Allowance, tax and NI are owed £26,430. CIS deductions of £9,600 have been paid. Depending on the exact NI calculation, a refund of £1,500 to £2,500 is realistic.
Groundworker earning £28,000 with high travel costs. If travel and accommodation expenses total £8,000, taxable profit is £20,000. After the Personal Allowance, tax applies to just £7,430 a very small liability against CIS deductions of £5,600 already paid. Refund likely exceeds £3,000.
The pattern is consistent. The more legitimate expenses claimed, the lower the taxable profit, and the larger the refund.
How to File a CIS Tax Return?
What You Need Before Starting?
- Your UTR (Unique Taxpayer Reference)
- National Insurance number
- CIS deduction statements from every contractor you worked for
- Records of all income received
- Receipts and records for every expense being claimed
Filing Through Self Assessment
Registration for Self Assessment is required before the first return can be filed. This is a separate step from CIS registration and catches some subcontractors off guard. Once registered, HMRC issues a UTR within a few weeks.
The return itself is completed online through the HMRC portal. Income from CIS work goes in the self-employment section. CIS deductions go in the tax already deducted section; this is where many subcontractors make errors, either forgetting to include deductions or entering them in the wrong place. Every deduction not claimed in the return is money left with HMRC unnecessarily.
Key Deadlines
| Deadline | Date | Consequence of Missing |
| Tax year end | 5 April | Year closes no further changes |
| Online filing deadline | 31 January | £100 immediate penalty |
| Payment deadline | 31 January | Interest from this date |
| Second penalty | 3 months late | £10 per day, up to £900 |
| Further penalty | 6 months late | 5% of tax owed or £300 |
Filing late is an expensive habit. A return one day past 31 January costs £100 automatically, regardless of whether any tax is owed.
Common Filing Mistakes That Cost Money
Entering incorrect income figures is the most common error usually because one contractor’s payments have been missed or a CIS statement has gone astray. Missing legitimate expenses runs a close second. Many subcontractors claim the obvious items and forget travel costs, phone bills, insurance, and professional fees that collectively add up to thousands.
Forgetting to enter CIS deductions already paid is perhaps the costliest mistake of all. The deductions have been paid leaving them out of the return means HMRC keeps money it should return. Using estimates instead of actual figures, losing CIS statements, and filing late all compound the financial damage.
Why Your CIS Refund Might Be Delayed?
HMRC’s stated processing time for CIS refunds is around four to six weeks from submission. In practice, delays are common and stem from several sources.
HMRC security checks on large refunds are routine. If your claim is significantly higher than previous years, expect additional scrutiny. Missing documentation particularly absent or incomplete CIS statements gives HMRC grounds to pause processing. Contractor reporting errors are a significant cause of delays: if a contractor has filed incorrect CIS returns or missed a monthly submission, HMRC’s records may not match what you are claiming.
UTR mismatches happen when a contractor has submitted deductions against an incorrect UTR. HMRC simply cannot see those deductions in your record, and the discrepancy has to be resolved before any refund is released.
If a refund is taking longer than eight weeks, contact HMRC directly. Have your UTR, the tax year in question, and all CIS statements ready before calling.
CIS for Limited Companies
Limited companies operating under CIS follow a different recovery route. Rather than claiming a refund through Self Assessment, a limited company offsets CIS deductions suffered against its employer PAYE and National Insurance liabilities. Where CIS deductions exceed those liabilities, a repayment can be requested from HMRC.
The process is more complex than the sole trader route, and errors are more common. Incorrectly completing the monthly Employer Payment Summary, failing to report CIS suffered correctly, or misunderstanding the offset mechanism all result in money sitting with HMRC longer than necessary.
When Professional Help Makes Financial Sense?
Most straightforward CIS returns can be filed without professional help, provided records are accurate and complete. The calculation becomes significantly more complex when multiple contractors are involved, expenses are high and varied, there is a mix of employed and self-employed income in the same year, or HMRC opens an enquiry into a submitted return.
A specialist cis accountant who works regularly with subcontractors brings knowledge of which expenses HMRC accepts without question, which require documentation, and how to present a return that maximises legitimate relief without attracting unnecessary scrutiny. For anyone with a refund above £3,000, a limited company structure, or an HMRC letter already in hand, professional support pays for itself quickly.
Frequently Asked Questions
I worked for several different contractors this year. Do I need a CIS statement from each one?
Yes, every single one. Each contractor who deducted CIS tax must provide a statement showing the amount taken. Missing even one means HMRC’s records may not match your return, which delays refunds and can trigger a compliance check. Contractors are legally required to provide statements and chase them if they are slow.
My contractor paid me cash and made no CIS deductions. Do I still need to file a tax return?
Yes. Cash payments do not remove the obligation to declare income. The income is still taxable regardless of how it was paid or whether deductions were made. HMRC has access to banking data and contractor records that make undeclared cash income easier to detect than most people expect. Declare everything and claim all legitimate expenses.
Can I claim expenses paid in cash without a receipt?
HMRC expects documentary evidence for every expense claimed. Cash purchases without receipts are harder to defend if questioned. Bank statements showing a withdrawal on the relevant date can support a claim, but a formal receipt is always stronger. The practical rule is simple: ask for a receipt every time, even for small purchases. They add up to meaningful tax savings by year end.
What is Gross Payment Status and is it worth applying for?
Gross Payment Status allows you to receive full payment from contractors without any CIS deduction taken. Instead of HMRC holding 20% throughout the year, you keep the full amount and settle any tax through Self Assessment. For subcontractors with good cash flow discipline and a clean compliance record, it is genuinely beneficial. To qualify, you need to meet HMRC’s turnover threshold and demonstrate a consistent history of meeting tax obligations on time.
HMRC says my CIS deductions are not showing on their system. What should I do?
Contact the contractor first. The most common cause is a contractor filing their monthly CIS return late, entering your UTR incorrectly, or not filing at all. Ask them to check and amend their submissions. Keep your own CIS statements as proof of what was actually deducted. If the contractor is unresponsive, HMRC’s CIS helpline can investigate but have your statements, invoices, and payment records ready before calling.
Conclusion
CIS deductions are not the end of the tax story, they are the beginning of it. The subcontractors who pay the least tax are not the ones earning the least. They are the ones who keep accurate records, claim every legitimate expense, and file on time.
The system rewards organisation. Start the habit at the beginning of the tax year, not the end, and the whole process becomes considerably more manageable.
Lanop Business and Tax Advisors works with CIS subcontractors across the UK calculating refunds, claiming allowable expenses, filing accurate returns, and resolving HMRC delays. If your refund feels smaller than it should be or HMRC has been in touch, Lanop is ready to help.
