CIS tax for subcontractors confuses a lot of people at the start, and honestly, that’s not surprising given how little explanation most tradespeople get when they first register. If you’ve just noticed money being taken off your invoices before you’re paid, this is what’s happening and what you need to do about it.

What CIS Actually Is and Why Your Contractor Deducts from Your Pay

CIS stands for Construction Industry Scheme. It’s a system HMRC set up so that tax gets collected from subcontractors in the construction industry before it ever reaches your bank account. The contractor pays you minus a deduction, and that deduction goes straight to HMRC on your behalf.

The rate depends on your status with HMRC. If you’re registered under CIS, the deduction is usually 20%. If you haven’t registered at all, it goes up to 30%. The good news is that those deductions are advance payments towards your tax bill, not an extra charge on top of it.

What You Actually Need to Do Each Year as a CIS Subcontractor

Every contractor who pays you should give you a monthly payment and deduction statement. This shows what they paid you and how much they sent to HMRC on your behalf. Hold onto every single one of these, because they’re essential when it comes to sorting your tax return.

If you’re a sole trader, you report your total income and the total CIS deductions on your Self Assessment tax return. HMRC works out the tax you owe and deducts whatever’s already been taken. If there’s still a balance due, you pay it by 31 January. If you’ve had too much taken off throughout the year, you get a refund.

Can You Get Money Back? How CIS Refunds Work

A lot of subcontractors end up with more money deducted than they actually owe in tax. This happens when your expenses are high, your income is lower than expected, or you’ve worked for part of the year. When that’s the case, HMRC owes you a refund.

For sole traders, the refund comes through your Self Assessment. HMRC calculates your actual tax bill, sees that more has already been paid via CIS deductions, and either pays the difference back to you or offsets it against anything else you owe. It’s worth filing your return as early as possible if you’re expecting money back, because refunds don’t happen automatically, you have to submit the return first.

If You’re a Limited Company Subcontractor, the Process Is Different

For limited companies working under CIS, the deductions taken by contractors count as advance payments towards your company’s tax liabilities. If more has been deducted than your company owes in tax, you can make a claim for a refund. HMRC will first use any excess to clear outstanding PAYE or Corporation Tax balances, and whatever’s left can come back to the company.

One thing that trips up limited company directors is trying to sort CIS deductions through the Corporation Tax return. HMRC is clear that this is the wrong approach and can result in a penalty. The correct route is through your company’s payroll scheme, using Full Payment Submissions and Employer Payment Summaries. If that sounds complicated, that’s because it is, and it’s exactly the kind of thing where having someone who knows CIS properly makes a real difference.