How Do CIS Tax Refunds Work for Subcontractors

Introduction

The Construction Industry Scheme (CIS) applies to most self employed workers and limited companies in the construction sector. Contractors deduct 20 percent (or sometimes 30 percent) from subcontractor payments and send it directly to HMRC as an advance payment toward your annual tax bill.

Because these deductions are based on gross income rather than profits, many subcontractors end up paying more tax than they owe. The difference can be claimed back through a CIS tax refund once you file your return with HMRC.

Why subcontractors overpay tax

CIS deductions are taken from your total payment before expenses are considered. Since you can claim business costs such as tools, fuel, or insurance, your actual profit is lower than your total earnings. When you file your Self Assessment tax return or company accounts, your real tax bill is recalculated.

If the total CIS deductions exceed your final tax liability, HMRC issues a refund for the overpaid amount.

Example

You earn £40,000 as a subcontractor and your contractor deducts £8,000 in CIS tax (20 percent). Your allowable expenses total £6,000, leaving £34,000 taxable profit. Based on this, your actual tax bill might be £6,000, meaning you have overpaid £2,000, which you can claim back as a refund.

How to claim a CIS tax refund

The process depends on whether you operate as a sole trader or through a limited company.

For sole traders and self employed subcontractors

If you are self employed, you claim your refund by filing a Self Assessment tax return after the tax year ends on 5 April.

Register for Self Assessment with HMRC if you have not already done so.

Gather your CIS payment and deduction statements from contractors.

Record your total income and business expenses for the year.

Submit your Self Assessment return online by 31 January following the end of the tax year.

When HMRC processes your return, they will calculate your total tax liability and compare it to the CIS tax already deducted. If you have overpaid, HMRC will issue a refund directly to your bank account, usually within two to six weeks.

For limited companies

If your construction business operates as a limited company, the refund process is slightly different.

CIS deductions made by contractors are treated as advance Corporation Tax payments. At the end of the tax year, your accountant offsets these deductions against your PAYE and Corporation Tax liabilities.

If you still have an overpayment after the offset, HMRC will refund the balance or carry it forward to future tax payments.

You can claim your CIS refund by:

Completing your company’s Corporation Tax return (CT600), showing CIS deductions as payments on account.

Submitting an application to HMRC using the company’s PAYE account if your CIS deductions exceed your tax liabilities.

Refunds for limited companies are usually processed within six to twelve weeks, depending on the accuracy of your records.

Example

ABC Construction Ltd has £15,000 in CIS deductions during the year. After offsetting PAYE and Corporation Tax, it still has £3,000 overpaid. The accountant submits a claim through the company’s PAYE account, and HMRC refunds the amount within eight weeks.

What information you need to claim a refund

To ensure your CIS refund is processed quickly, you will need:

CIS payment and deduction statements from each contractor.

Records of all business expenses and receipts.

Your UTR (Unique Taxpayer Reference).

Bank details for the refund payment.

Copies of previous tax returns if applicable.

Accurate record keeping is essential. If figures do not match HMRC’s records, it can delay the refund process.

What expenses can you claim to reduce your tax

Claiming all allowable expenses is the key to maximising your refund. Common expenses include:

Tools, equipment, and protective clothing.

Vehicle costs or mileage for business travel.

Public liability insurance.

Mobile phone and communication costs.

Training and qualifications.

Accounting and professional fees.

Only expenses that are wholly and exclusively for business use can be claimed.

Example

A subcontractor earns £50,000 and has £10,000 in expenses, including fuel, tools, and insurance. Their contractor deducted £10,000 in CIS tax. After submitting their Self Assessment, their true tax bill is £7,000, so HMRC refunds £3,000.

How long it takes to get a CIS refund

The refund time varies depending on when and how you submit your return.

Online Self Assessment returns are typically processed within two to six weeks.

Limited company refunds can take six to twelve weeks, as they may require additional checks.

Submitting accurate information, using an accountant, and filing early in the tax year all help speed up the process.

How a CIS accountant can help with your refund

A CIS accountant ensures your claim is accurate and maximised by:

Checking your CIS statements against HMRC’s records.

Calculating all allowable expenses and capital allowances.

Completing and submitting your tax return or CT600 correctly.

Following up with HMRC if your refund is delayed.

Advising on ways to reduce deductions in future years, such as applying for gross payment status if eligible.

Professional help can often result in larger refunds and faster processing times.

Example

Tom, a self employed plasterer, tried to complete his tax return on his own and made errors in his figures. His refund was delayed for three months. The next year, his CIS accountant filed the return correctly and included £2,000 in overlooked expenses. His refund was issued in three weeks, and he received £600 more than the previous year.

Common reasons CIS refunds are delayed

Missing or inaccurate CIS deduction statements.

Errors in the tax return or incorrect UTR numbers.

HMRC requiring additional identity or compliance checks.

Late filing of Self Assessment or Corporation Tax returns.

Unpaid tax liabilities from previous years.

Keeping detailed records and filing on time helps avoid these delays.

How to avoid future overpayments

You can reduce the likelihood of large overpayments by:

Registering for gross payment status so you receive payments without CIS deductions.

Keeping accurate records of all expenses throughout the year.

Working with an accountant to file returns and manage deductions monthly.

Gross payment status is available to businesses with a good tax history and strong financial management. It allows subcontractors to receive full payments and handle tax directly through their own returns.

Example scenario

Sarah runs a small roofing business as a sole trader. Her contractors deduct 20 percent tax under CIS. During the year, she earns £35,000 and has £5,000 in expenses. When she submits her Self Assessment in April, her accountant calculates that she has overpaid £1,500 in tax. HMRC processes her refund within four weeks, and the money is paid directly into her bank account.

Conclusion

CIS tax refunds allow subcontractors to reclaim overpaid tax deducted by contractors throughout the year. To claim your refund, you must file a Self Assessment or Corporation Tax return showing your income, expenses, and CIS deductions.

Keeping accurate records and working with a CIS accountant ensures your refund is maximised and processed quickly. By staying organised and compliant, you can improve cash flow and make sure you only pay the tax you owe — nothing more.