The Construction Industry Scheme (CIS) is a tax scheme designed by HMRC to regulate how contractors handle payments to subcontractors in the construction sector. If you work as a subcontractor under CIS, you’ll typically have 20% of your income deducted at source (or 30% if you’re not registered with CIS). While this means you’re paying tax in advance, you may be entitled to a tax refund when filing your self-assessment tax return—especially if you claim all allowable business expenses.

Understanding what expenses you can claim as a CIS subcontractor is crucial for reducing your tax liability and ensuring you don’t overpay HMRC. Many subcontractors fail to claim legitimate expenses, missing out on significant tax savings. This guide will break down everything you need to know about CIS tax deductions, what counts as an allowable expense, and how to file your tax return correctly to maximise your refund.

Understanding CIS Tax for Subcontractors

How CIS Tax Works

The CIS is designed to ensure tax compliance within the construction sector. Instead of subcontractors receiving full payment for their work and then paying tax later, contractors deduct tax at the point of payment and submit it to HMRC on their behalf.

  • Standard CIS deduction: 20% is deducted if the subcontractor is registered with CIS.
  • Higher rate deduction: 30% is deducted if the subcontractor is not registered with CIS.
  • Gross Payment Status: If a subcontractor qualifies for gross payment status, no deductions are made, and they handle their own tax payments.

How CIS Deductions Affect Your Tax Return

At the end of the tax year, subcontractors must file a self-assessment tax return to report their total income and claim back any overpaid tax. Since CIS tax is deducted at source, many subcontractors end up overpaying tax and can claim a refund by deducting their allowable business expenses from their taxable income.

For example, if you earned £30,000 under CIS and had £6,000 in business expenses, your taxable income would be reduced to £24,000. This reduction could result in a tax refund if too much tax was deducted during the year.

Claiming expenses correctly is essential, as HMRC can request records to verify your claims. Failing to keep accurate records or claiming non-allowable expenses can lead to penalties.

Allowable Expenses for CIS Subcontractors

To ensure you’re paying the correct amount of tax, you need to understand which expenses you can claim. Allowable expenses must be wholly and exclusively for business purposes and directly related to your work as a subcontractor.

Here are the most common expense categories:

1. Travel & Mileage Costs

  • Fuel and mileage expenses if using a personal vehicle for work
  • Vehicle maintenance and servicing (if used for business)
  • Public transport costs for work-related travel
  • Parking fees and tolls (excluding fines)
  • Accommodation costs if working away from home

Note: If you use your vehicle for both work and personal use, you can only claim the business-related portion of the expenses.

2. Tools & Equipment

  • Purchase of tools required for work
  • Repairs or replacements of damaged tools
  • Hire costs for tools and machinery

Tip: Keep receipts for all tool purchases, as HMRC may request proof of necessity.

3. Protective Clothing & PPE

  • Safety boots, helmets, gloves, and high-visibility vests
  • Overalls and other protective workwear

Note: General clothing (such as regular jeans or jackets) does not qualify.

4. Materials & Supplies

  • Raw materials used for completing jobs
  • Consumables such as nails, screws, and adhesives
  • Hiring of specialist equipment if required for work

5. Home Office Costs (if applicable)

If you work from home for administrative tasks, you may be able to claim a portion of your home expenses. This includes:

  • A percentage of rent or mortgage interest
  • Utility bills (electricity, gas, water)
  • Internet and phone costs
  • Office furniture and stationery

HMRC allows a simplified flat rate for home office use, or you can calculate actual expenses based on business usage.

6. Phone & Internet Bills

  • A proportion of your phone bill if used for business calls
  • Internet costs if required for work-related tasks

7. Professional Fees & Insurance

  • Accountancy fees for tax return preparation
  • Public liability insurance
  • Trade body memberships

These expenses are essential for running your business and can be deducted from your taxable income.

How to Keep Accurate Records for Expense Claims

One of the most common mistakes CIS subcontractors make is failing to keep proper records of their expenses. HMRC requires subcontractors to maintain accurate records to justify any claims made in their self-assessment tax return. If you’re ever subject to an audit, having well-organised records can prevent potential fines or penalties.

Best Practices for Keeping Records

  • Keep all receipts and invoices: Every expense you claim must be backed up with proof, such as receipts, bank statements, or invoices.
  • Separate business and personal finances: Using a separate business bank account makes it easier to track income and expenses.
  • Use digital accounting tools: Software like QuickBooks, Xero, or FreeAgent can help automate expense tracking.
  • Log mileage and travel expenses: Keep a mileage log for work-related trips, noting the date, distance, and purpose of the journey.
  • Retain records for at least 6 years: HMRC may investigate past tax returns, so it’s important to store your financial records for this period.

By maintaining organised records, you not only make tax filing easier but also ensure you’re claiming the maximum amount of allowable expenses without errors.

Filing Your Self-Assessment Tax Return with CIS Deductions

As a CIS subcontractor, you must file a self-assessment tax return each year to calculate whether you owe additional tax or are due a refund. Since CIS tax is deducted at source, many subcontractors overpay tax and can claim a refund.

Steps to File Your Tax Return Correctly

  1. Register for self-assessment: If you’re a new subcontractor, you must register with HMRC before the deadline (usually by 5th October following the end of the tax year).
  2. Gather your CIS statements: Contractors should provide monthly CIS deduction statements showing the tax withheld from your earnings.
  3. Calculate your total income: Include all payments received from contractors before tax deductions.
  4. Deduct allowable expenses: Subtract business-related expenses to calculate your taxable profit.
  5. Claim CIS tax deductions: Enter the total tax deducted by contractors—this helps determine if you’re due a refund.
  6. Submit your return before the deadline: The online filing deadline is 31st January following the end of the tax year.

Example Calculation:

  • Total income before deductions: £30,000
  • Allowable expenses: £6,000
  • Taxable income: £24,000
  • CIS tax deducted by contractors: £6,000
  • Tax due (basic rate 20% of £24,000): £4,800
  • Tax refund: £1,200 (since £6,000 was already deducted)

By correctly filing your tax return, you can ensure you receive any overpaid tax back from HMRC.

Common Mistakes to Avoid

To maximise your tax efficiency and avoid penalties, be mindful of these common mistakes:

1. Claiming Non-Allowable Expenses

  • Everyday clothing, even if worn for work
  • Meals (unless for business travel away from your usual work location)
  • Personal expenses unrelated to business activities

2. Failing to Keep Records

Without receipts or records, HMRC may reject your expense claims, leading to a higher tax bill.

3. Missing Tax Return Deadlines

  • Late submissions result in automatic £100 penalties (even if you don’t owe tax).
  • Further penalties apply after 3, 6, and 12 months.

4. Not Registering for CIS

If you’re working as a subcontractor but fail to register, contractors will deduct 30% instead of 20%, leading to unnecessary overpayments.

How LT Accounting Can Help

At LT Accounting, we specialise in helping CIS subcontractors manage their tax affairs efficiently. Our services include:

✅ Self-Assessment Tax Returns – Ensuring all deductions are claimed correctly
✅ CIS Tax Refund Claims – Maximising your refund and reducing tax liability
✅ Bookkeeping & Record-Keeping – Helping you stay organised and compliant
✅ Tax Planning Advice – Avoiding common pitfalls and optimising tax efficiency

Many subcontractors unknowingly overpay tax each year. With our expert assistance, we’ll ensure you claim every allowable deduction and receive the refund you’re entitled to.

📞 Contact us today for expert CIS tax advice and hassle-free tax filing!

Conclusion

Understanding CIS tax and allowable expenses can save you thousands of pounds each year. By keeping accurate records, filing your self-assessment on time, and claiming all eligible expenses, you can ensure you only pay what you owe—and nothing more.

For professional support in managing your CIS tax, LT Accounting is here to help. Whether you need assistance with bookkeeping, tax returns, or reclaiming overpaid tax, we’ll make the process simple and stress-free.

Don’t let HMRC keep your hard-earned money—get in touch today!