CIS tax return and refund: how subcontractors get their money back.

The Construction Industry Scheme makes the contractor collect tax on HMRC’s behalf. Each time a contractor pays you for construction work they check you with HMRC, hold back a percentage of the labour part of your invoice and pay it to HMRC in your name. HMRC treats what was held back as an advance payment towards your income tax and National Insurance for the year. It is not an extra tax, and it is not the final figure.

Registering is free and is done online with your Unique Taxpayer Reference. If you are new to self employment, registering for self assessment as a subcontractor registers you for both at once. Give every contractor exactly the business name and reference you registered with: if the details do not match, the contractor cannot verify you and has to take 30%.

The scheme is for the self employed. If you work set hours under someone’s direction, with their tools, you may be an employee in HMRC’s eyes whatever your contract says, and CIS does not apply to employees.

The percentage is not taken from the whole invoice. When your contractor works out the deduction they leave out:

• VAT, if you are registered for it and charge it
• materials that you paid for directly
• consumable stores, which means equipment that is used up on the job
• plant hired for the job
• the cost of manufacturing or prefabricating materials

Everything else is in, and that includes travel and subsistence. If you charge mileage or a meal allowance, the deduction is taken from that too.

Keep the receipts for your materials. A contractor who is not shown what the materials cost has to estimate it, and an estimate that is too low means tax taken from money that was never your income.

Show labour and materials as separate lines on every invoice. It costs nothing, and it removes the most common reason for a deduction that is larger than it should be.

The refund arises because the 20% was taken from every pound of labour, from the first day of the year, with no allowance for the £12,570 Dan can earn tax free or for the £4,000 it cost him to do the work. The return is where those are counted.

Had Dan not been registered, 30% would have been taken: £9,000 instead of £6,000. His bill would have been the same £3,491.80, so the refund would have been £5,508.20, but he would have been without that extra £3,000 all year.

If you are a sole trader or a partner

The refund is claimed on your self assessment return. You enter your total pay before deductions as income, and the total taken by contractors in the box for CIS deductions. HMRC works out your bill, takes the deductions off it, and either asks for the balance by 31 January or pays the difference back to you.

The return can be sent from 6 April, the day after the tax year ends. The 31 January deadline is the last day, not the right day: a subcontractor who is owed money has every reason to file in April or May.

If you stop trading part way through a year, you may be able to reclaim that year’s deductions straight away rather than waiting for the return.

If you work through your own limited company

A company does not wait for a return. Each month it sets the CIS taken from its income against the PAYE, National Insurance and CIS it owes HMRC, by entering the year to date total on its Employer Payment Summary. Anything left over is carried to the next month of the same tax year, and anything still left after 5 April is reclaimed from HMRC.

Not on the corporation tax return. A company that tries to take its CIS deductions off its corporation tax bill can be charged a penalty. The route is the payroll scheme.

The statements are your evidence

Your contractor has to give you a payment and deduction statement for each tax month within 14 days of its end. Tax months end on the 5th, so the statement is due by the 19th. Keep every one: HMRC can ask to see them before it pays a refund.

If a contractor will not give you statements, or has gone out of business, write to HMRC with your name, address and Unique Taxpayer Reference, the contractor’s name and address and tax reference if you know it, the dates or tax months you were paid, and the reason you have no statements.

With gross payment status nothing is taken from your payments. You pay all of your tax and National Insurance after the year ends, which is better for cash flow and is often a condition of tendering for larger work. To get it, your business has to show HMRC that:

• it has paid its tax and National Insurance on time
• it does construction work, or provides labour for it, in the UK
• it is run through a bank account

It also has to pass a turnover test over the last 12 months, leaving out VAT and the cost of materials.

HMRC reviews every business with gross payment status once a year. A small number of late returns or payments is allowed. Fail the review and HMRC writes to say the status will be withdrawn in 90 days; you have 30 days from that letter to appeal, and if the status goes you wait a year before applying again. If you agree a time to pay arrangement with HMRC and keep to it, that does not count against you.

1. “Knew or should have known”

From 6 April 2026, if a business makes or receives a payment that it knew, or should have known, was connected to fraud, HMRC can take away its gross payment status immediately, make it liable for the tax that was lost, and charge a penalty of up to 30% of that tax on the business or, in some cases, its officers. A business that loses its status for fraud or serious non-compliance cannot apply again for five years.

The words “should have known” are the ones that matter. It is no longer enough not to have been involved. If you pay other subcontractors, keep a record of how you checked them; if the people you work for seem to change company every few months, or your statements do not match what you were paid, ask why.

2. Contractors file every month, even when nobody was paid

If you also pay subcontractors, you are a contractor as well. From 6 April 2026 a contractor who has paid nobody in a tax month has to file a nil return, or tell HMRC in advance that it will be inactive for up to six months. Doing neither by the 19th brings a penalty.

3. Making Tax Digital has started

Sole traders whose income from self employment and property together was over £50,000 in the 2024 to 2025 tax year have had to keep digital records and send HMRC quarterly updates since 6 April 2026. The test looks at income before expenses, and before CIS deductions, so a subcontractor whose profit is modest can still be over the line. The threshold falls to £30,000 in April 2027 and £20,000 in April 2028. Your CIS refund is still claimed through the year end return.