RSU tax UK explained

How Subcontractors Can Claim Back CIS Tax Deductions: A Step-by-Step Guide

If you work as a subcontractor in the construction industry, your contractors deduct Construction Industry Scheme (CIS) tax from your payments before passing it to HMRC. These deductions are not your final tax bill they are advance payments towards your tax liability for the year. In many cases, particularly where you have allowable business expenses, your actual tax bill will be lower than the total deducted, meaning you are owed a refund.

A CIS tax refund can therefore arise where the CIS deducted during the year exceeds the final amount of tax and National Insurance you actually owe. The amount available to reclaim depends on your business structure, taxable profit and the total deductions shown on your CIS payment and deduction statements.

This guide explains how CIS deductions work, how refunds arise, and the different processes for reclaiming overpaid CIS as a sole trader versus a limited company.

How CIS Deductions Work

Under CIS, when a contractor pays a subcontractor for construction work, they are required to withhold a portion of the payment and send it to HMRC. The rate depends on your registration status:

  • 0% – gross payment status: if you qualify for gross payment status, you receive the full amount with no deduction
  • 20% – registered subcontractor: the standard rate for subcontractors registered for CIS
  • 30% – unregistered subcontractor: the higher rate applied if you cannot be verified by HMRC

The deducted amount is held by HMRC as an advance payment towards your income tax and National Insurance (if you are a sole trader or partnership) or your PAYE and corporation tax liabilities (if you are a limited company). These are not permanent tax payments – they are reconciled at the end of the tax year against your actual liability.

Each CIS tax deduction therefore contributes towards the tax already paid on your behalf. If the total deductions are higher than the liability eventually calculated, the excess may become refundable.

The term ‘CIS suffered’ refers to the total amount of CIS deductions made from your payments by contractors during the year. This is the figure you will need to record accurately when reclaiming any overpayment.

If you want to understand how contractors determine which rate applies to you and how these deductions are calculated in practice, read our guide on CIS deduction rates and how contractors can correctly calculate them.

How Refunds Arise

A refund arises when the total CIS deducted from your payments during the year is more than your actual tax liability for that year. This happens for two main reasons:

  • CIS is deducted on gross labour payments, without taking account of your business expenses. If your allowable expenses are significant – tools, fuel, vehicle costs, protective clothing – your taxable profit will be lower than your gross income, which means your tax bill will be lower than the CIS deducted
  • If you did not work for the full tax year, the total CIS deducted may exceed the tax due on a lower annual income

The size of a CIS refund is therefore not determined simply by how much was deducted. It depends on comparing the CIS suffered with your final tax position after allowable expenses, reliefs and other relevant liabilities have been taken into account.

While you wait for your refund to be processed, managing the impact of CIS deductions on your day-to-day cash flow is essential. Read our guide on how subcontractors can manage their cash flow when facing CIS deductions for practical strategies to maintain financial stability throughout the year.

Worked Example

A sole trader subcontractor earns £40,000 in gross payments from contractors in 2025-26. CIS is deducted at 20%, so £8,000 is withheld.

The subcontractor’s allowable expenses are £12,000 (tools, van costs, fuel, and protective clothing). Taxable profit is therefore £28,000. After the £12,570 personal allowance, taxable income is £15,430.

Income tax at 20%: £3,086. Class 4 National Insurance on profits above £12,570: approximately £700. Total tax and NIC liability: approximately £3,786.

CIS deducted: £8,000. Refund due: approximately £4,214.

In this example, the CIS tax refund arises because the £8,000 deducted by contractors is greater than the subcontractor’s final tax and NIC liability after allowable business expenses are taken into account.

Without claiming the refund, this subcontractor would have overpaid by more than £4,000. Filing a Self Assessment return with all allowable expenses claimed is what generates the refund.

Route 1: Reclaiming CIS as a Sole Trader or Partnership

Sole traders and partners in a partnership reclaim CIS deductions through the Self Assessment tax return. The process is:

  • Register for Self Assessment with HMRC if you have not already done so
  • Collect all CIS payment and deduction statements from your contractors these show the gross payment, deduction made, and net amount received for each month
  • Record all your allowable business expenses for the year
  • Complete your Self Assessment return, entering your total CIS income, allowable expenses, and the total CIS deductions suffered

HMRC calculates your tax and NIC liability and offsets the CIS deductions against it. If the deductions exceed your liability, the difference is paid to you as a refund

If you are asking how do I claim my CIS refund as a sole trader, the key step is completing the Self Assessment return accurately and entering the full amount of CIS deductions suffered so HMRC can offset them against your final liability.

The deadline for online Self Assessment is 31 January following the end of the tax year. Filing earlier is beneficial HMRC will process your refund more quickly than if you file in January.

You can claim overpaid CIS for up to four years after the end of the tax year in which the deductions were made. If you have missed claiming for previous years, it is worth reviewing whether a back claim is possible.

To claim CIS refund amounts successfully, keep the deduction statements supplied by contractors and reconcile them against the income reported in your records before submitting the return.

Route 2: Reclaiming CIS as a Limited Company

Limited company subcontractors do not reclaim CIS through their Self Assessment or Corporation Tax return. Instead, they offset CIS deductions suffered against their PAYE and National Insurance liabilities through the monthly Employer Payment Summary (EPS).

The process is:

  • Each month, submit your Full Payment Submission (FPS) as usual to report payroll
  • On your Employer Payment Summary (EPS), report the total CIS deductions suffered during that tax month
  • HMRC offsets the CIS suffered against your PAYE and NIC liability for that month. If the CIS suffered exceeds your liability, the balance carries forward to offset against the following month’s bill
  • If your company has excess CIS suffered that cannot be offset against PAYE/NIC during the year, you can apply to HMRC for a cash refund – this can be done online

HMRC processes refund claims for limited companies separately from PAYE settlement. For large excess balances, refunds can also be offset against VAT liabilities. Do not attempt to claim CIS deductions suffered through your company’s Corporation Tax return this is not the correct route.

For a limited company, a CIS tax refund is therefore handled differently from a sole trader claim. The company must first account for CIS suffered through the PAYE process before seeking repayment of any remaining excess.

Common Allowable Expenses for CIS Subcontractors

The more allowable expenses you can legitimately claim, the lower your taxable profit and the larger your potential refund. Common expenses for CIS subcontractors include:

  • Tools and equipment purchased for use on site
  • Van or vehicle costs either actual costs or the HMRC fixed rate mileage allowance
  • Fuel costs for travel to construction sites (not commuting to a regular workplace)
  • Protective clothing and safety equipment (clothing must be protective, not general workwear)
  • Public liability insurance
  • Accounting fees for preparing your tax return

Materials purchased for a specific job are also deductible, but only where they are not reimbursed separately by the contractor. Keep receipts for everything.

Allowable expenses can have a direct effect on your potential CIS refund because they reduce the taxable profit used to calculate your final liability. Accurate records are therefore important when working out whether you have paid too much CIS during the year.

 

Case Study: Recovering Overpaid CIS Deductions for a Subcontractor

Daniel approached our Fulham office after noticing that a significant amount of CIS tax had been deducted from his construction income throughout the year. He was registered under CIS and contractors were deducting tax at 20%, but he was unsure whether those deductions represented his final tax liability or whether some of the money could be reclaimed.

Cigma Accounting reviewed Daniel’s CIS payment and deduction statements alongside his business records. We reconciled the CIS suffered against the income received from his contractors and reviewed his allowable expenses, including qualifying tools, van costs, fuel, protective equipment, insurance and accounting fees.

Once these expenses were taken into account, Daniel’s taxable profit was considerably lower than his gross construction income. His CIS deductions therefore exceeded the final Income Tax and National Insurance liability calculated through his Self Assessment tax return, creating an overpayment that could be reclaimed from HMRC.

Our wider review covered Daniel’s CIS accounting, Self Assessment, bookkeeping and allowable business expenses. We also helped establish a more organised record-keeping process so future CIS statements, receipts and construction expenses could be reconciled throughout the year rather than collected shortly before the filing deadline.

Daniel was left with an accurate tax return, a CIS refund claim supported by the appropriate records and a clearer understanding that CIS deductions are advance tax payments rather than automatically being the final amount of tax he owes.

CHECK WHETHER YOU HAVE OVERPAID CIS TAX

Had 20% or 30% CIS deducted from your construction payments? Cigma Accounting can review your CIS statements, allowable expenses and final tax position to establish whether you are entitled to claim money back from HMRC.

CHECK YOUR CIS TAX REFUND

Expert accountants in London providing practical tax advice for businesses and individuals.

CIS Tax Refund and Subcontractor Tax Support in London With Cigma Accounting

A CIS tax refund may be due where deductions made from subcontractor payments exceed the final tax liability for the year. However, the amount recoverable depends on accurate income records, CIS deduction statements, allowable business expenses and the subcontractor’s wider tax position. Cigma Accounting supports subcontractors across Wimbledon, including Raynes Park and Wimbledon Park, helping them reconcile deductions and prepare accurate refund claims.

Before you claim CIS refund amounts, it is important to check that each CIS tax deduction can be supported by the appropriate records and that legitimate expenses have been treated correctly. For subcontractors asking how do I claim my CIS refund, we provide practical support with tax calculations, Self Assessment reporting and CIS records. Through our offices across London, Cigma Accounting helps clients establish whether a CIS refund is due, submit accurate information to HMRC and reduce the risk of delays caused by incomplete or inconsistent claims.

CIS Tax Refund FAQs: Claims, Deductions, Deadlines and HMRC Repayments

What is a CIS tax refund?

A CIS tax refund can arise when the Construction Industry Scheme deductions taken from a subcontractor’s payments are greater than their final tax and National Insurance liability for the tax year. CIS deductions are advance payments towards the subcontractor’s tax rather than necessarily being their final tax bill.

A sole trader normally claims their CIS refund through their Self Assessment tax return. The CIS deductions shown on payment and deduction statements should be entered on the return so HMRC can offset them against the final tax liability. If the deductions exceed the amount owed, a repayment may be due. 

Under CIS, contractors generally deduct 20% from payments to subcontractors who are registered for CIS and 30% where a subcontractor is not registered or cannot be verified correctly. Subcontractors approved for gross payment status can receive qualifying payments without CIS deductions, although they remain responsible for paying their own tax and National Insurance.

No. A CIS tax deduction is an advance payment towards your tax and National Insurance liabilities. HMRC uses the deductions against the amount ultimately due. You receive a refund only where the CIS deductions and other payments or credits exceed your final liability.

Subcontractors should keep the payment and deduction statements received from contractors, together with invoices, business expense records and other information supporting their Self Assessment return. Contractors must provide a statement showing the payments and deductions made within 14 days of the end of each tax month.

Yes. CIS deductions and allowable business expenses perform different functions. CIS deductions are credited against your tax liability, while allowable expenses reduce the taxable profit on which your tax is calculated. Legitimate expenses can therefore affect the amount of CIS tax refund ultimately due.

Make Sure You Claim the CIS Refund You’re Entitled To

CIS deductions can result in a tax refund where the amount deducted exceeds your final tax liability. Cigma Accounting helps subcontractors reconcile CIS statements, identify allowable expenses, calculate their tax position and prepare accurate refund claims, reducing the risk of errors or unnecessary delays with HMRC.

Check Your CIS Tax Refund

Cigma Accounting helps subcontractors recover CIS tax refunds efficiently with accurate reporting, compliant submissions, and clear HMRC guidance.


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