Can I Offset CIS Deductions Against My Tax Bill

If you work in the UK construction industry as a subcontractor, you are likely part of the Construction Industry Scheme (CIS). Under CIS, contractors deduct tax from payments to subcontractors and pass it to HMRC on their behalf. These deductions count as advance payments toward your overall tax bill. Many subcontractors wonder how to reclaim or offset these CIS deductions when filing their tax returns. This article explains how CIS deductions work, how to offset them against your tax bill, and what to do if you have overpaid tax.

What Is the Construction Industry Scheme

The Construction Industry Scheme is a system set up by HMRC to ensure tax compliance within the construction sector. It applies to contractors and subcontractors working in areas such as building, demolition, repairs, and civil engineering.

  • Contractors deduct tax from payments to subcontractors.

  • Subcontractors have tax deducted at either 20 percent (standard rate) or 30 percent (if not registered for CIS).

These deductions are sent to HMRC and recorded against the subcontractor’s tax account. They act as advance tax payments, meaning the subcontractor receives credit for them when calculating their annual tax liability.

How CIS Deductions Work for the Self Employed

If you are a self employed subcontractor, your contractor deducts CIS tax from each payment before you receive it. For example, if you invoice £1,000 for labour and materials, the contractor may:

  • Deduct 20 percent (£200) in CIS tax.

  • Pay you £800.

  • Send the £200 to HMRC.

When you complete your Self Assessment tax return, you must report your total income and the CIS deductions made during the year. The deductions are then offset against your overall Income Tax and National Insurance liabilities.

Example:
If your total tax bill for the year is £3,000 and you have had £2,500 deducted under CIS, you will only need to pay the remaining £500 to HMRC.

If your CIS deductions exceed your tax bill, you can claim a refund from HMRC.

How CIS Deductions Work for Limited Companies

Limited companies that operate as subcontractors can also have CIS deductions offset against their tax liabilities. The process, however, is slightly different.

  • CIS deductions made by contractors are credited to the company’s CIS account with HMRC.

  • The company can offset these deductions against its PAYE liabilities, including Income Tax and National Insurance due on employee wages.

  • Any remaining balance can be claimed as a refund or carried forward to the next tax period.

The company must submit accurate CIS returns each month and reconcile them with its PAYE submissions to ensure HMRC applies the deductions correctly.

If the company’s PAYE account ends up in credit, it can request repayment from HMRC, usually at the end of the tax year.

How to Offset CIS Deductions on Your Tax Return

To offset CIS deductions, you must accurately record the amounts deducted throughout the year and include them in your tax return.

For self employed subcontractors:

  1. Register for CIS with HMRC if you have not already done so.

  2. Keep copies of all payment and deduction statements received from contractors.

  3. Enter your total income (the gross amount before deductions) on your Self Assessment tax return.

  4. Enter the total CIS tax deducted in the appropriate box.

  5. HMRC will offset the deductions against your total tax and National Insurance liability when processing your return.

For limited companies:

  1. Record all CIS deductions made by contractors throughout the year.

  2. Offset the total against PAYE liabilities on your company’s monthly submissions.

  3. At the end of the tax year, reconcile your records and request repayment if you have overpaid.

Accurate bookkeeping is essential because HMRC will only offset CIS deductions supported by proper documentation.

Claiming a Refund for Overpaid CIS Tax

If your CIS deductions exceed your total tax bill, you can claim a refund. The process depends on whether you are self employed or operate through a limited company.

Self employed subcontractors:

  • HMRC will automatically calculate any refund due when you submit your Self Assessment return.

  • Refunds are usually issued by bank transfer or cheque within a few weeks of filing your return.

Limited companies:

  • Submit your final PAYE submission for the tax year, showing all deductions made and offset.

  • If there is a remaining credit, request a refund from HMRC using your company’s Government Gateway account or by contacting HMRC’s CIS repayment team.

Refunds can take several weeks to process, especially during busy periods after the tax year ends.

Keeping Records for CIS

To support your claims and avoid disputes with HMRC, you must keep detailed records of all CIS transactions. These include:

  • CIS payment and deduction statements from each contractor.

  • Invoices and payment receipts.

  • Bank statements showing incoming payments.

  • Monthly CIS returns (for limited companies).

HMRC requires you to keep these records for at least three years in case they need to review them.

If your records are incomplete, your accountant can help reconstruct them using bank data and invoices to ensure your claim is correct.

Common Problems and How to Avoid Them

Many subcontractors struggle to claim CIS deductions correctly because of errors or missing information. Common issues include:

  • Contractors failing to provide deduction statements.

  • Using net instead of gross figures on tax returns.

  • Not registering for CIS and having 30 percent deducted instead of 20 percent.

  • Submitting inaccurate or late returns.

To avoid problems, check that your contractors are submitting the correct deductions to HMRC and that you receive a valid statement for every payment. Working with an accountant ensures everything is recorded accurately and submitted on time.

CIS for Contractors Who Also Subcontract

Some businesses act as both contractors and subcontractors. If this applies to you, you must:

  • Deduct CIS tax from payments to your subcontractors as a contractor.

  • Have CIS tax deducted from payments you receive as a subcontractor.

You can offset the deductions made against your own CIS liabilities by reconciling both sides through your company’s PAYE system or Self Assessment return.

How an Accountant Can Help with CIS Deductions

Handling CIS deductions can be time-consuming, especially if you work with multiple contractors. An accountant can:

  • Reconcile all CIS deductions and ensure they are recorded correctly.

  • Offset deductions against your tax or PAYE liabilities.

  • Submit Self Assessment or Corporation Tax returns accurately.

  • Apply for refunds promptly on your behalf.

  • Advise on cash flow management while waiting for refunds.

They can also check that your contractors are submitting the correct amounts to HMRC, preventing discrepancies that could delay your claims.

Summary

Yes, you can offset CIS deductions against your tax bill. For self employed subcontractors, the deductions reduce your overall Income Tax and National Insurance due through Self Assessment. For limited companies, they can be offset against PAYE liabilities or reclaimed if overpaid.

Keeping clear records and submitting accurate returns ensures you receive full credit for the tax already deducted. With the help of an accountant, you can streamline the process, recover overpayments quickly, and stay compliant with HMRC’s Construction Industry Scheme requirements.