How to Reclaim CIS Deductions as a Subcontractor

The Construction Industry Scheme (CIS) is a tax deduction system implemented by HM Revenue & Customs (HMRC) to regulate payments between contractors and subcontractors in the construction sector. Under this scheme, contractors must deduct a percentage of subcontractors’ earnings—typically 20% for registered subcontractors and 30% for those not registered—with the deducted amount being sent directly to HMRC as an advance tax payment.

While this system ensures tax compliance, it often results in subcontractors overpaying tax, particularly if they have allowable expenses or their total tax liability is lower than the deducted amount. As a subcontractor, reclaiming these CIS deductions is essential to recovering any overpaid tax and improving your cash flow.

If you work under CIS, ensuring you reclaim your deductions correctly can make a significant financial difference. In this article, we will explore how the CIS system works, who is eligible for a refund, and the step-by-step process of reclaiming CIS deductions for both self-employed individuals and limited companies.

Understanding CIS Deductions

How Does CIS Work for Subcontractors?

CIS applies to most construction work, including site preparation, repairs, decorating, and demolition. Under this scheme, contractors are legally required to deduct tax from subcontractors’ pay before it reaches them. These deductions act as advance payments toward the subcontractor’s income tax and National Insurance contributions (NICs).

The deductions are as follows:

• 20% for registered subcontractors – If you have registered for CIS with HMRC, your contractor will deduct 20% from your payments.
• 30% for unregistered subcontractors – If you haven’t registered for CIS, your contractor will deduct 30% from your earnings.
• 0% (Gross Payment Status) – Some subcontractors qualify for Gross Payment Status, meaning they receive their full earnings without deductions, but they are responsible for paying tax and NICs at the end of the year.

What Do CIS Deductions Cover?

CIS deductions only apply to the labour portion of your earnings. They do not cover:

• Materials
• VAT
• Equipment hire
• Fuel expenses (except for mileage paid for work-related travel)

For example, if you submit an invoice for £1,000, where £800 is for labour and £200 is for materials, the contractor will apply the CIS deduction only to the £800.

How Do CIS Deductions Affect Subcontractors?

Since these deductions are sent directly to HMRC, they reduce the amount of tax you need to pay at the end of the financial year. However, many subcontractors find that they have overpaid tax because the deductions do not take into account expenses or other tax allowances. That’s why it’s crucial to reclaim any overpaid CIS tax through HMRC.

Eligibility for Reclaiming CIS Deductions

Reclaiming CIS deductions is an essential part of managing your tax obligations as a subcontractor. However, before you start the process, it’s important to understand who is eligible to claim, what conditions must be met, and the time limits for submitting a claim.

Who Can Reclaim CIS Deductions?

CIS refunds are available to subcontractors who have had tax deducted from their earnings under the Construction Industry Scheme. The method of reclaiming depends on whether you are:

1. A self-employed individual (sole trader or partnership) – You can reclaim CIS deductions when you submit your Self-Assessment Tax Return. If your total tax liability is lower than the amount already deducted, HMRC will issue a refund.
2. A limited company – You reclaim CIS deductions through your PAYE system by offsetting the deducted amounts against your company’s tax and National Insurance liabilities. Any overpayments can be reclaimed at the end of the tax year.

Conditions for a Valid CIS Tax Refund Claim

To successfully reclaim your CIS deductions, you must meet the following conditions:

• You are registered as a subcontractor under CIS. If you are unregistered, your deductions will be at a higher rate (30%), and while you can still reclaim the tax, it may complicate the process.
• You have accurate records of all CIS deductions. This includes your monthly CIS statements (provided by contractors), invoices, and proof of expenses.
• Your tax return is completed correctly and submitted on time. Errors or missing information could delay your refund.
• You have allowable business expenses. If you’ve incurred work-related expenses, these can reduce your taxable income and increase the refund amount.

Time Limits for Claiming a CIS Refund

HMRC allows subcontractors to reclaim CIS deductions for up to four years after the end of the relevant tax year. If you have overpaid tax due to CIS deductions in previous years but have not yet claimed, you may still be eligible for a refund.

Here are the key deadlines:

• For the tax year 2023/24 (ending 5 April 2024) – You must submit your Self-Assessment by 31 January 2025 to reclaim any deductions.
• For previous tax years – You can claim a refund for tax years as far back as 2020/21, but you must submit a claim before 5 April 2025.

What Happens If You Miss the Deadline?

If you fail to submit your claim within the allowed timeframe, you risk losing your entitlement to a refund. HMRC does not process late claims unless exceptional circumstances apply.

How to Reclaim CIS Deductions as a Self-Employed Subcontractor

If you are a self-employed subcontractor working under the Construction Industry Scheme (CIS), reclaiming your CIS deductions is done through your Self-Assessment Tax Return. Since contractors deduct tax at a fixed rate (usually 20%), your total tax liability at the end of the year may be lower than the amount already paid to HMRC. This means you could be due a refund.

Below is a step-by-step guide on how to reclaim your CIS deductions as a sole trader or partner in a business.

Step 1: Gather the Necessary Records

Before completing your Self-Assessment, you’ll need to collect all relevant documents, including:

✅ CIS Deduction Statements – Each month, your contractor should provide a CIS statement showing the gross payment, deductions, and net payment. These are essential for proving the amount of tax deducted.

✅ Invoices and Payment Records – Keep copies of all invoices sent to contractors, along with bank statements or remittance advice showing payments received.

✅ Expense Receipts – You can reduce your taxable income by claiming allowable expenses, such as:

• Tools and equipment
• Work-related travel (fuel, mileage, public transport)
• Protective clothing (e.g., safety boots, helmets)
• Insurance and professional fees
• Phone and internet bills used for business

✅ Your Unique Taxpayer Reference (UTR) Number – You must be registered for Self-Assessment and CIS with HMRC to reclaim deductions.

Step 2: Complete Your Self-Assessment Tax Return

Self-employed subcontractors must submit their Self-Assessment tax return by 31 January following the end of the tax year (e.g., for the tax year ending 5 April 2024, the deadline is 31 January 2025).

To complete your tax return (SA100), follow these steps:

1. Log into your HMRC account (via the Government Gateway).
2. Navigate to the Self-Assessment section and start a new return.
3. Fill in the ‘Self-Employment’ section (SA103S or SA103F) – Provide details of your business income and expenses.

Step 3: Report CIS Deductions on Your Tax Return

In the CIS deductions section, you must enter the total amount of tax that has already been deducted from your payments by contractors.

To do this:

• Locate the section titled “CIS deductions suffered” under your Self-Employment tax return.
• Enter the total deductions based on your CIS statements.
• This amount will be deducted from your overall tax bill.

For example, if your taxable profit for the year is £30,000 and your total tax liability is £6,000, but your CIS deductions total £7,000, you would be owed a refund of £1,000.

Step 4: Submit Your Tax Return and Receive Your Refund

Once you have completed all sections, submit your Self-Assessment tax return. HMRC will process your return and calculate whether you are due a refund.

✅ How long does it take to get a CIS refund?

• If you file your return online, refunds are typically processed within 2-4 weeks.
• If submitting a paper return, it may take 6-8 weeks.
• Refunds are usually paid via bank transfer, cheque, or used to offset future tax bills.

Common Mistakes to Avoid When Reclaiming CIS Deductions

🚫 Not keeping CIS deduction statements – Without these, HMRC may reject your claim.
🚫 Failing to record business expenses – This could result in paying more tax than necessary.
🚫 Missing the Self-Assessment deadline – Late submissions result in penalties and delays in receiving refunds.
🚫 Providing incorrect UTR details – Always ensure your UTR is correctly entered to avoid processing errors.

How to Reclaim CIS Deductions as a Limited Company

If you operate as a limited company under the Construction Industry Scheme (CIS), reclaiming deductions is different from the process for self-employed subcontractors. Instead of claiming through Self-Assessment, CIS deductions are offset against your company’s PAYE (Pay As You Earn) and National Insurance (NI) liabilities.

This section will guide you through the step-by-step process of reclaiming CIS deductions as a limited company, ensuring you recover any overpaid tax efficiently.

Step 1: Ensure Proper CIS Registration and Monthly Returns

To reclaim CIS deductions as a limited company, you must be:

✅ Registered as a subcontractor under CIS – This ensures that deductions are made at 20% rather than 30%.
✅ Registered as an employer with PAYE – Even if you have no employees, you must operate PAYE for your director’s salary.
✅ Submitting CIS300 monthly returns – If you act as both a contractor and subcontractor, you must file monthly CIS returns to report deductions you’ve made and suffered.

Step 2: Offset CIS Deductions Against PAYE and NI Liabilities

Since CIS deductions are made against your income before you receive it, they can be used to reduce the amount of PAYE and National Insurance contributions that your company owes to HMRC.

Each month:

1. Calculate your company’s PAYE liability – This includes deductions for employees’ salaries, employer’s National Insurance, and student loan repayments.
2. Deduct the CIS suffered from your PAYE bill** – The amount already deducted from your payments can be used to reduce what you owe HMRC.
3. Report the deductions on your Employer Payment Summary (EPS) – This must be submitted before the 19th of each month.

📌 Example:

• Your company owes £3,000 in PAYE and NIC for employees.
• Your contractors have deducted £2,000 in CIS from payments made to your company.
• Instead of paying £3,000, you only need to pay £1,000 to HMRC.

Step 3: Reclaiming CIS Deductions at Year-End

If your total CIS deductions exceed your total PAYE liability (i.e., you have overpaid tax), you can apply for a refund from HMRC at the end of the tax year.

To do this:
✅ Submit your final EPS for the tax year – This should show total CIS suffered and PAYE paid.
✅ Request a repayment from HMRC – If you’ve overpaid, you can ask for a refund via the government gateway or by submitting a claim in writing to:

📍 HMRC, PAYE Employer Office, BX9 1BX, United Kingdom

✅ Wait for HMRC to process the refund – This can take 4-8 weeks, and repayments are usually made via bank transfer or cheque.

Common Mistakes to Avoid When Reclaiming CIS as a Limited Company

🚫 Not offsetting CIS correctly against PAYE – This can result in paying too much tax.
🚫 Failing to submit monthly EPS reports – Without these, HMRC may not recognise your CIS deductions.
🚫 Late filings and errors – Delays in submitting returns can lead to penalties and cash flow problems.

Common Mistakes to Avoid When Reclaiming CIS Deductions

Reclaiming CIS deductions can be a straightforward process if done correctly. However, many subcontractors and limited companies make avoidable mistakes that can lead to delays, underclaimed refunds, or even penalties from HMRC. In this section, we’ll highlight the most common pitfalls and how to avoid them.

1. Not Keeping Proper CIS Deduction Statements

One of the most critical documents for reclaiming CIS deductions is the CIS deduction statement provided by contractors each month. This statement outlines:

✅ The total amount invoiced
✅ The CIS tax deducted
✅ The net payment received

📌 Mistake: Some subcontractors fail to collect or keep these statements, making it difficult to prove how much tax has already been deducted.

✔ How to Avoid It:

• Request a CIS statement from your contractor every month.
• Keep both digital and physical copies for at least four years.
• Use bookkeeping software to store records securely.

2. Failing to Register for CIS (Leading to 30% Deductions Instead of 20%)

📌 Mistake: If you don’t register as a subcontractor under CIS, contractors must deduct 30% from your payments instead of the standard 20%. This means you’ll have to reclaim more tax at the end of the year, which can affect your cash flow.

✔ How to Avoid It:

• Register for CIS with HMRC before starting work as a subcontractor.
• Ensure your contractor verifies your CIS status before making payments.

3. Missing the Self-Assessment or EPS Filing Deadlines

📌 Mistake: If you don’t submit your Self-Assessment tax return (for sole traders) or Employer Payment Summary (EPS) (for limited companies) on time, your refund will be delayed, and you could face penalties.

✔ How to Avoid It:

• Self-Assessment Deadline: 31 January following the tax year (e.g., for 2023/24, the deadline is 31 January 2025).
• EPS Filing Deadline: 19th of each month if reclaiming CIS through PAYE.
• Use accounting software or hire an accountant to automate submissions.

🚨 Penalties for Late Filing

• Missed Self-Assessment deadline: £100 fine, increasing over time.
• Missed EPS filings: HMRC may not offset your CIS deductions, meaning you could overpay tax.

4. Claiming Incorrect or Non-Allowable Expenses

📌 Mistake: Some subcontractors fail to claim allowable expenses, while others claim non-business expenses, which can lead to errors or potential investigations by HMRC.

✔ How to Avoid It:
✅ Claimable expenses include:

• Tools and equipment
• Protective clothing (e.g., safety boots, helmets)
• Work-related travel (fuel, mileage, public transport)
• Insurance (e.g., public liability insurance)
• Accountancy fees

🚫 Non-claimable expenses include:

• Everyday clothing (even if worn to work)
• Travel costs unrelated to work
• Personal meals (unless for business meetings)

5. Incorrectly Reporting CIS Deductions on the Tax Return

📌 Mistake: Some subcontractors either forget to include CIS deductions on their tax return or enter them incorrectly, leading to delays in refunds or HMRC rejecting claims.

✔ How to Avoid It:

• Sole Traders: Enter total CIS deductions in the ‘CIS deductions suffered’ section of the Self-Assessment tax return.
• Limited Companies: Report CIS suffered on the EPS return each month to offset against PAYE.

6. Expecting Instant Refunds from HMRC

📌 Mistake: Some subcontractors expect to receive their CIS refund immediately after submitting their tax return. However, HMRC typically takes 2-4 weeks to process refunds (or longer in peak periods).

✔ How to Avoid It:

• Submit your Self-Assessment or EPS as early as possible to avoid delays.
• Ensure all information is correct to prevent further verification requests from HMRC.

By avoiding these common mistakes, you can speed up your CIS refund process, maximise your tax savings, and stay compliant with HMRC regulations.

How LT Accounting Can Help You Reclaim CIS Deductions

Navigating the CIS tax deduction and reclaim process can be complex, especially for subcontractors and limited companies managing multiple contracts and expenses. At LT Accounting, we specialise in helping construction industry professionals reclaim overpaid tax efficiently while ensuring full compliance with HMRC regulations.

Whether you’re a sole trader, partnership, or limited company, our expert accountants can streamline the process, maximise your tax refund, and save you time.

Why Choose LT Accounting for Your CIS Tax Reclaim?

✅ Expertise in CIS Accounting – We have extensive experience handling CIS tax returns, ensuring accurate deductions and maximum refunds.
✅ Accurate Record-Keeping – We help you maintain organised CIS statements, invoices, and expense records for a smooth reclaim process.
✅ Maximising Your Refund – By identifying allowable expenses and applying correct tax reliefs, we ensure you never overpay tax.
✅ Timely Submissions – We handle Self-Assessment and EPS filings to prevent delays and penalties.
✅ HMRC Liaison – If HMRC requires additional information or there are refund delays, we communicate directly with them on your behalf.

Our CIS Tax Reclaim Services

📌 For Sole Traders & Partnerships:

• Self-Assessment Tax Return Filing – We complete and submit your return accurately and on time.
• CIS Deduction Calculations – Ensuring correct reporting of CIS suffered to claim back tax.
• Expense Management – Identifying deductible costs to reduce taxable income.
• HMRC Refund Tracking – We monitor your refund status and follow up with HMRC if needed.

📌 For Limited Companies:

• Monthly CIS & Payroll Management – Handling CIS300 returns, PAYE submissions, and CIS offsets.
• Employer Payment Summary (EPS) Filings – Ensuring CIS suffered is deducted from PAYE liabilities correctly.
• CIS Refund Applications – If your CIS deductions exceed your PAYE bill, we apply for a refund from HMRC.
• Company Tax Planning – Helping you manage cash flow efficiently and stay compliant with corporation tax rules.

How to Get Started with LT Accounting

Reclaiming your CIS deductions doesn’t have to be stressful. Our expert team is ready to handle the process for you, ensuring you receive your refund quickly and hassle-free.

📞 Call us today to discuss your CIS reclaim.
📧 Email us for a free consultation.
🌐 Visit our website to learn more about our accounting services.

📍 Let LT Accounting take care of your CIS reclaim, so you can focus on what you do best—your trade!

Conclusion

Reclaiming CIS deductions is crucial for subcontractors and limited companies in the construction industry to avoid overpaying tax and improve cash flow. Whether you file a Self-Assessment Tax Return (for sole traders) or reclaim CIS through PAYE (for limited companies), understanding the correct process ensures you get back what you’re owed.

By following the steps outlined in this guide—and avoiding common mistakes—you can ensure a smooth and efficient tax reclaim process. However, if you want to save time and ensure accuracy, LT Accounting is here to help.

📢 Don’t leave money on the table—get in touch with LT Accounting today and let us handle your CIS refund!