If you are a tradesperson working under CIS and you are not entirely sure what you are supposed to be doing with your tax, you are not alone. This guide covers what CIS deductions actually mean for you, what records you need to keep, and how to claim back anything you have overpaid.

Why CIS accounting matters for your business

The Construction Industry Scheme (CIS) requires contractors to deduct tax from your payments before you ever see the money. Those deductions are not a fine or a charge – they are advance payments towards your tax bill, as set out in HMRC’s guidance for subcontractors. If you do not report them correctly, you could end up paying tax twice, or missing a refund that is rightfully yours.

The standard deduction rate for registered subcontractors is 20%. If you have not registered with HMRC under CIS, that rate rises to 30%. Getting registered and reporting your deductions properly on a Self Assessment tax return is the single most important thing you can do to protect your cash flow.

Where most subcontractors go wrong

CIS confuses most new subcontractors. The mistakes that cause the most trouble are not usually complicated – they are the same few things that crop up again and again, often because nobody explained the rules clearly at the start.

Not keeping your monthly payment and deduction statements

Every contractor you work for should give you a monthly payment and deduction statement. These show exactly how much was paid to you and how much was deducted. You need these to claim your deductions back on your Self Assessment return, and without them HMRC can challenge your figures. HMRC guidance confirms that if you do not respond to their queries with evidence, they will amend or remove your claim without further notice.

Treating CIS deductions as money already gone

Many sole trader subcontractors assume the 20% deducted is simply the tax they owe and leave it there. In reality, your actual tax bill is calculated on your profits after expenses – and in most cases you will be owed a refund. Reporting your deductions correctly on your Self Assessment return means HMRC works out what you actually owe and pays back the difference. Ignoring the return means you never see that money.

What to do (step by step)

Most subcontractors find that once they understand the process, it is straightforward. There are three things you need to do in the right order, and the rest follows from there.

1. Register as a CIS subcontractor with HMRC. You need a Unique Taxpayer Reference (UTR) to do this. Registering means your contractor can verify you and deduct at the standard 20% rate rather than 30%. You can apply for gross payment status later once you meet the turnover and compliance tests, which removes deductions at source entirely.
2. Keep every payment and deduction statement your contractors give you each month. File them somewhere you can find them. These are your evidence that deductions were taken, and you will need the exact figures when completing your Self Assessment tax return at the end of the tax year.
3. File your Self Assessment tax return each year, reporting your total income before deductions as gross income, then entering your total CIS deductions separately. HMRC calculates what you owe on your profits and offsets the deductions already taken. If more was deducted than you owe, HMRC pays the difference back to you. The deadline for online returns is 31 January following the end of the tax year, and any tax still owed is due on that same date.

If you operate through a limited company rather than as a sole trader, the process is different. Your CIS deductions are offset against your company’s monthly PAYE liability rather than through a Self Assessment return. HMRC is clear that limited companies must not use their Corporation Tax return to pay tax using CIS deductions, as doing so can trigger a penalty. If your deductions exceed your PAYE liability, you can claim a refund from HMRC once the tax year has ended.

Costs and what to expect

There are two broad options for managing your CIS accounting: doing it yourself or working with an accountant. Both have trade-offs. Doing it yourself is workable if you are confident with Self Assessment, you keep every deduction statement you receive, and you understand which expenses you can legitimately claim. The risk is that errors in your CIS figures can trigger HMRC queries, and since April 2021 HMRC has had increased powers to amend CIS claims where evidence is not provided. An accountant who handles CIS returns regularly will know how to maximise your refund, deal with HMRC queries on your behalf, and ensure your Self Assessment is filed on time. At STZ Accounting, CIS returns are handled as part of a fixed-price sole trader package starting from £150 per month plus VAT, which includes bookkeeping, VAT returns, annual accounts, and your Self Assessment. There are no hidden extras and no tie-in.

How to get started today

If you have CIS deductions sitting unreported, or you are not sure whether you have filed correctly in past years, the practical next step is to gather what you have and speak to someone who can tell you exactly where you stand. David works remotely with subcontractors across Scotland and the UK, responds the same day, and will give you a fixed quote before any work begins. There is no obligation from the initial call.

• Gather every CIS payment and deduction statement you have received from contractors. If you are missing some, contact the relevant contractor and ask for duplicates – you are entitled to them.
• Book a free introductory call with David at STZ Accounting. Bring your UTR number and a rough idea of your gross income for the year. David will explain exactly what needs to be filed, what you are likely owed back, and what it will cost.