If you're a subcontractor in UK construction, there's a good chance HMRC is holding money that belongs to you. Every time a contractor pays you, they deduct 20% (or 30% if you're not registered) and send it straight to HMRC. That deduction is an advance on your tax bill — not the final figure. Once you account for your personal allowance and your business expenses, the tax you actually owe is almost always less than what was taken. The difference is a refund.
Refund season runs from the moment the tax year ends on 5 April. The sooner you file, the sooner you're paid. Here's exactly how it works.
Why Subcontractors Overpay (Almost Every Year)
The CIS deduction is a blunt instrument. The contractor applies a flat percentage to your labour charge and pays it over to HMRC, with no regard for your personal circumstances. But your real tax bill is worked out very differently:
- You get a personal allowance — £12,570 for 2025/26 — that's taxed at 0%. CIS deductions ignore it entirely.
- You can deduct allowable business expenses before tax is calculated. CIS deductions don't.
- The 20% rate is often higher than your effective rate once the allowance and expenses are applied.
Put simply: a subcontractor earning a modest profit, with the personal allowance and legitimate expenses in play, has frequently overpaid by hundreds or even thousands of pounds across a year. That's why CIS refunds are so common — for many sole-trader subbies, a repayment is the norm, not the exception.
You can get a quick sense of the numbers with our free CIS calculator — it shows the deduction on a given payment and separates labour from materials, which is where a lot of the confusion (and overpayment) starts.
First Principles: Deductions Only Apply to Labour
This trips people up constantly. CIS deductions are only taken from the labour element of your invoice. The following are excluded from the deduction:
- Materials you bought for the job
- Plant hire and consumable stores
- Fuel (except for travelling)
- VAT charged on the invoice
So if you invoice £2,000 and £700 of that is genuinely materials you paid for, the 20% should only bite on the £1,300 of labour — a £260 deduction, not £400. If a contractor has been deducting from your gross invoice including materials, that's another source of over-deduction to recover. Always itemise labour and materials separately on every invoice. (Our deeper CIS deductions guide walks through the mechanics in full.)
The Records You Need Before You Claim
You can't reclaim what you can't evidence. Pull these together first:
- Your CIS payment and deduction statements. Every contractor must give you a statement for each tax month they pay you (or at least monthly), showing the gross amount, the cost of materials, and the tax deducted. These are your proof of CIS suffered. If a contractor hasn't sent them, chase them — they're legally required to provide them.
- Your sales records — every invoice you raised, labour and materials split out.
- Your expense records — receipts and a tidy log for everything you're claiming.
- Your UTR (Unique Taxpayer Reference) and Government Gateway login.
If you've lost a deduction statement, you can reconstruct the figures from your bank statements and the contractor's records, but a proper statement is always cleaner.
Don't Leave Expenses on the Table
Every pound of legitimate expense you claim reduces your taxable profit, which increases your refund. Common allowable expenses for construction subcontractors include:
- Tools and equipment (and capital allowances on larger purchases)
- Protective clothing and safety gear — boots, hi-vis, hard hats, gloves
- Travel to temporary sites — mileage, fuel, parking, tolls
- Materials and consumables you paid for
- Public liability and tools insurance
- Phone, admin, and a proportion of home-office costs
- Accountancy or bookkeeping fees
Travel is one of the biggest and most under-claimed. If you drive your own vehicle between jobs and temporary workplaces, you can usually claim the HMRC approved mileage rate. Work it out with our mileage calculator and keep a log — those miles add up fast over a year on the road.
How Sole Traders Reclaim CIS
If you operate as a sole trader (or in a partnership), you reclaim through Self Assessment:
- Register for Self Assessment if you haven't already, and file your return for the 2025/26 tax year. You can file any time from 6 April 2026; the online deadline is 31 January 2027 — but there's no reason to wait if you want your money back sooner.
- Complete the self-employment pages, declaring your turnover and expenses to arrive at your taxable profit.
- Enter the total CIS deductions taken from your payments in the dedicated box (on the SA103 / full self-employment section).
- HMRC calculates your tax and Class 4 NIC, offsets the CIS already paid, and refunds the excess.
Once processed, HMRC pays the refund directly to your bank account — usually within a few weeks of a clean online return, sometimes faster, occasionally longer if they open a check. Filing early in the tax year tends to mean a quicker, quieter repayment before the January rush.
How Limited Companies Reclaim CIS
If you trade through a limited company, the route is different — you don't reclaim CIS through your Corporation Tax return. Instead, you reclaim the CIS suffered through your payroll scheme:
- Each tax month, record the CIS deductions suffered on your Employer Payment Summary (EPS) submitted to HMRC.
- HMRC offsets that CIS against the amounts your company owes through PAYE — employees' tax, National Insurance, and any CIS you deducted from your own subcontractors.
- If, after offsetting everything, there's still CIS left over at the end of the tax year, you can apply to HMRC for a repayment or to have it set against another liability such as Corporation Tax or VAT.
The key discipline for limited companies is reporting CIS suffered on the EPS every month — miss it and the offset doesn't happen, and you tie your cash up unnecessarily.
Watch Out For These Mistakes
- Filing without your deduction statements. Guessing the CIS figure invites an HMRC enquiry. Use the statements.
- Forgetting to split materials. Deductions on materials shouldn't happen — recover them.
- Under-claiming expenses. The most common reason a refund is smaller than it should be.
- Refund-firm fees. Some agents take 20–40% of your refund for a return you could file yourself. A good accountant on a fixed fee is far better value — and an honest one will tell you whether you even need them.
- Leaving it until January. Early filing means an earlier refund and a calmer deadline.
The Bottom Line
For most subcontractors, a CIS refund isn't a windfall — it's your own overpaid tax coming home. The 20% taken at source ignores your personal allowance and every expense you're entitled to, so the gap is usually in your favour. Get your deduction statements in order, claim every legitimate expense, and file as soon as the tax year is done.
Start by estimating the numbers with our free CIS calculator, and read the full CIS deductions guide if you want the complete picture of how the scheme works.
Drakon Systems builds practical tools and automation for UK small businesses and the people who keep their books. This article is general guidance, not personal tax advice — for your specific situation, speak to a qualified accountant.