Introduction
If you work in the construction industry as a subcontractor, there is a good chance that you are overpaying tax every year and simply not claiming it back. Under the Construction Industry Scheme (CIS), contractors are required to deduct tax from the payments they make to subcontractors before handing it over to HMRC. For most subcontractors, this deduction is set at 20%. For those who are not registered under CIS, it rises to 30%.
The problem is that these deductions are made on the gross payment, without taking into account any business expenses you have incurred. A clear understanding of CIS accounting for UK builders helps subcontractors avoid common reporting mistakes and maximise the refund they are entitled to claim. As a result, the vast majority of subcontractors end up overpaying tax during the year, sometimes by a considerable amount. The good news is that this money is reclaimable. The less welcome news is that many subcontractors either do not know this, miss the claim entirely, or receive less back than they are entitled to because their expenses have not been properly accounted for.
At Livingstones Accountants, we help construction subcontractors across the UK recover the tax they are owed efficiently and accurately. In this article, we explain exactly how CIS tax refunds work, what you need to claim, and how to ensure you are not leaving money on the table.
How CIS Deductions Work – and Why They Create Overpayments
To understand why refunds arise so frequently, it helps to understand the mechanics of the CIS deduction system. When a contractor pays a subcontractor for labour, they are required to withhold 20% (or 30% for unregistered subcontractors) of the payment and pass this directly to HMRC as an advance payment towards the subcontractor’s tax liability.
Crucially, however, this deduction is calculated on the labour element of the payment, not on materials. That said, the deduction takes no account whatsoever of the subcontractor’s business expenses. Your tools, your van, your fuel, your insurance, your workwear, your phone – none of these are factored in when the contractor calculates what to deduct.
When you come to file your Self-Assessment tax return, all of these expenses are deducted from your income to arrive at your taxable profit. Your actual tax liability is then calculated on that lower figure. Because your CIS deductions were based on your gross income rather than your net profit, the amount already paid to HMRC almost always exceeds your actual liability, and the difference is your refund.
The size of that refund depends on how much you have earned, how many allowable expenses you can legitimately claim, and how efficiently your tax return has been prepared. This is precisely where professional accounting support makes a significant difference.
Who Is Eligible for a CIS Tax Refund
The majority of subcontractors working under CIS are eligible for a refund, though the amount varies considerably. This is especially relevant for tradespeople planning to start a general building business in the UK, where CIS compliance becomes part of day-to-day operations. In broad terms, you are likely to be owed a refund if:
- You are registered under CIS and have had 20% deducted from your payments throughout the year
- You have incurred genuine business expenses that have not been taken into account in the deduction calculation
- Your total tax liability for the year - once expenses are deducted - is lower than the total CIS deductions already made on your behalf
Tailored business services from £149.99 per month
Chartered Certified Accountants
Even subcontractors who earn relatively modest amounts often find that they are owed several hundred pounds or more once their expenses are properly accounted for. For higher-earning subcontractors with significant tool, vehicle, and material costs, refunds can run to several thousand pounds.
It is also worth noting that if you operate through a limited company rather than as a sole trader, the refund process works differently. CIS deductions suffered by a limited company are offset against the company’s Corporation Tax and PAYE liabilities rather than through Self-Assessment. If the deductions exceed these liabilities, the company can claim a repayment from HMRC directly.
What Expenses Can Subcontractors Claim
One of the most important factors in maximising your CIS refund is ensuring that all legitimate business expenses are included in your Self-Assessment return. Many subcontractors significantly under-claim in this area, either because they are unaware of what qualifies or because they have not kept adequate records.
The following categories of expense are commonly claimable for construction subcontractors:
- Tools and equipment - both the cost of smaller tools purchased outright and capital allowances on larger equipment
- Vehicle costs - either the actual costs of running a van or car used for work (fuel, insurance, servicing, repairs) or HMRC's approved mileage rate, depending on which method is more beneficial
- Vehicle costs - either the actual costs of running a van or car used for work (fuel, insurance, servicing, repairs) or HMRC's approved mileage rate, depending on which method is more beneficial
- Protective clothing and workwear - safety boots, hi-vis jackets, hard hats, and similar items required for the job
- Materials - where you supply materials as part of a job and these have not already been excluded from the CIS deduction
- Public liability insurance and professional subscriptions - relevant trade body memberships and insurance premiums
- Phone and communication costs - the business proportion of mobile phone and broadband bills
- Accountancy fees - the cost of preparing your tax return is itself a deductible expense
The key requirement is that expenses must be wholly and exclusively incurred for the purposes of the business. Where there is a private element – for example, a vehicle used for both work and personal journeys – only the business proportion is deductible.
How to Claim Your CIS Tax Refund: Step by Step
Claiming a CIS refund is done through the Self-Assessment system. The process is straightforward in principle, though the accuracy of the claim depends entirely on the quality of the records and the completeness of the expense claim.
- Register for Self-Assessment if you have not already done so. All self-employed subcontractors must be registered, regardless of whether they owe tax or are due a refund.
- Gather your CIS statements – your contractors are required to provide you with monthly CIS deduction statements showing the gross payment, the deduction made, and the net amount paid. Keep all of these, as they form the basis of your claim.
- Compile your income records – total up all payments received from all contractors during the tax year.
- Calculate your allowable expenses – this is where thorough record-keeping throughout the year pays dividends. Bank statements, receipts, and mileage logs all support the expense claim.
- Complete and file your Self-Assessment return – entering your income, expenses, and CIS deductions suffered. The system will automatically calculate any refund due.
- Receive your refund – HMRC typically processes CIS refunds within a few weeks of the return being filed, provided the return is accurate and there are no queries. The refund is paid directly into your bank account.
The Self-Assessment filing deadline is 31 January following the end of the tax year. However, it is worth filing as early as possible if you are expecting a refund – the sooner the return is submitted, the sooner the money arrives.
Common Mistakes That Reduce Your Refund
Several avoidable errors consistently result in subcontractors receiving less than they are owed. The most frequent issues we encounter include failing to claim all allowable vehicle costs, not keeping mileage logs throughout the year, losing receipts for tools and materials, and omitting professional subscriptions and insurance premiums from the expense claim.
Additionally, some subcontractors make the mistake of not registering for CIS at all, which means they are subject to the 30% deduction rate rather than the standard 20% rate. Registering promptly when you begin working under CIS is, therefore, an immediate financial benefit.
Practical tip: Keep a dedicated folder, physical or digital, for all CIS statements, receipts, and records throughout the year. The few minutes it takes to file each document as it arrives saves considerable time and protects your refund claim at year-end.
How Livingstones Accountants Can Help
At Livingstones, we work with construction subcontractors across the UK to ensure they claim every penny of CIS refund they are entitled to – accurately, efficiently, and on time.
Our services for CIS subcontractors include:
Tailored business services from £149.99 per month
Chartered Certified Accountants
- Tax planning and preparation - preparing and filing your Self-Assessment return with a full and accurate expense claim, ensuring your refund is maximised
- Bookkeeping services - helping you maintain the records needed to support your expense claim throughout the year, rather than scrambling to reconstruct them in January
- Business advisory - advising on whether sole trader or limited company status is more appropriate for your situation, and how this affects the CIS refund process
- Cash flow management - helping you plan around the timing of CIS deductions and refunds so that your business finances remain stable throughout the year
- VAT services - advising on VAT registration thresholds and the VAT reverse charge rules that apply to construction services, which interact directly with your CIS obligations
Understanding VAT pitfalls in manufacturing is equally important where subcontractor work and supply-chain VAT treatment overlap.
We also assist subcontractors who have fallen behind with their Self-Assessment filings. If you have missed returns for previous tax years and are consequently missing out on refunds you are owed, we can bring your returns up to date and recover what HMRC owes you. Our services start from just £15 per month, with packages tailored to your circumstances.
Frequently Asked Questions
You can claim CIS refunds for up to four tax years prior to the current year. Beyond that, the claim becomes time-barred. If you have been working under CIS for several years without filing returns, there may still be significant refunds available — but time is a factor, and it is worth acting promptly.
HMRC typically processes Self-Assessment repayments within two to four weeks of the return being filed, provided the return is straightforward and does not trigger any queries. Repayments are made directly to your nominated bank account.
Yes. CIS refunds are claimed through the Self-Assessment system, so you must be registered. If you are not currently registered, we can handle this process on your behalf.
Contractors are legally required to provide monthly CIS deduction statements. If yours have not done so, you should request them formally. In the meantime, HMRC can confirm the deductions recorded against your UTR number, which we can access on your behalf as your authorised agent.
Yes. If you have both employment income (taxed under PAYE) and self-employed CIS income, both must be reported on your Self-Assessment return. The overall tax calculation will take all income and deductions into account, and any net refund will be paid to you accordingly.
Conclusion
If you are working as a subcontractor under CIS and you are not filing a Self-Assessment return each year, there is a strong likelihood that you are leaving tax refunds unclaimed. The combination of 20% deductions on gross payments and the wide range of legitimate business expenses available to construction workers means that overpayments are the norm, not the exception.
At Livingstones Accountants, we make the process of claiming your CIS refund straightforward and thorough. We ensure your return is accurate, your expenses are fully claimed, and your refund reaches your account as quickly as possible. To find out more or to get started, contact us today for a free, no-obligation consultation.
