Guide to CIS Deduction Refunds

The Construction Industry Scheme (CIS) is a scheme that sits under HMRC and applies to subcontractors working for contractors in the construction sector, but not directly as an employee. Essentially, if you submit a Self-Assessment tax return, you may apply for a CIS tax refund.

A CIS deduction refund lets you claim back tax that has been over‑deducted from your construction income. CIS tax can eat away at subcontractors’ net income, but the good news is that most people in the sector can apply for a CIS deduction refund. Understanding when you may be entitled to a CIS refund and how to claim should help you when times feel especially financially testing and avoid falling into a cash flow struggle.

What is a CIS Deduction?

Under CIS, contractors must deduct tax (typically 20% if you are registered) from payments to most self‑employed subcontractors instead of paying you gross.

These deductions are sent straight to HMRC and treated as advance payments towards your income tax and Class 4 National Insurance contributions (NICs) for the year.​

Unlike PAYE employment, CIS deductions are taken from your sales income before your business expenses and personal allowances are taken into account. That is why many subcontractors find that the tax deducted at source is higher than the final amount due once the whole tax year is reviewed.​

The aim of CIS reductions is to simplify administration and show HMRC your true tax position ahead of being issued with a tax bill. Unfortunately, due to the variable nature of construction work, reductions usually end up taking too much.

Common Reasons for CIS Refunds

CIS refunds usually arise where the tax deducted upfront is higher than the amount eventually charged through income tax and Class 4 NICs. The typical situations when a CIS refund is due include (but are not limited to) the following:

• Substantial allowable business expenses (e.g., tools, PPE, mileage, transport, accommodation, professional fees, etc.) are added. Collectively, these can reduce your taxable profits, so some of the CIS tax taken turns out to be surplus.​
• Subcontractors receive a relatively low level of annual income, thus their personal allowance covers part of their earnings and, by extension, not all of the CIS deducted is actually necessary.​
• Contractors undergo periods with little or no work, experience large gaps between contracts, or potentially switch between PAYE employment and CIS during the same tax year.​
• In some cases, being paid at the higher 30% rate due to not being registered under CIS at the time, then registering later and ending the year over‑deducted.​

For many subcontractors, a CIS refund becomes an expected annual cash‑flow boost, but it is still important to get the figures right and avoid over‑ or under‑claiming.​

How Subcontractors Claim CIS Refunds

Most self‑employed subcontractors make a claim for a CIS refund through their annual Self-Assessment (SA) tax return. In practical terms, the process involves:​

• Registering for Self-Assessment
• Collecting monthly CIS payment and deduction statements from each contractor
• Providing invoices and receipts to support your claim
• Calculating your total construction income, allowable expenses and the total CIS tax deducted across all contractors.
• Filing your return by 31 January (for online filing) following the end of the tax year and choosing a repayment method such as direct bank transfer.​

HMRC then compares the CIS deductions already paid with your final liability and issues a refund where there is an overpayment. Any additional income (perhaps obtained through rental or PAYE income), this is also considered in the same calculations.

How CIS-Approved Contractors Can Get Overpayment Refunds

Contractors operate CIS on payments they make to subcontractors, noting any deductions through their monthly CIS returns. Any overpayments made to contractors usually occur when deductions suffered on their own income (as subcontractors) exceed what’s due, or where payments made to HMRC are duplicated.

For companies, CIS deductions suffered are usually set against PAYE liabilities (including tax, NIC and student loan deductions) through the company’s PAYE scheme. Any excess funds can then be reclaimed from HMRC once the year-end accounting reports are complete.

How Hamlyns Can Support You

Hamlyns’ specialist tax team regularly assists contractors and subcontractors across the construction sector with CIS registration, record‑keeping and Self Assessment compliance. Completing and submitting an annual SA tax return and fulfilling CIS criteria can be complicated, and many feel reassured with a professional tax agent handling it on their behalf.

We take great pride in helping clients maximise legitimate expense claims, correctly report CIS deductions, and pursue HMRC where refunds are delayed or have been incorrectly refused. Contact our professional tax advisers and accountants today for advice on how to get started and ensure you are entitled to the maximum tax refund available to you.