CIS Expenses and Tax Refunds for Subcontractors

If you work as a subcontractor under the Construction Industry Scheme, your contractor holds back part of your payments and sends it to HMRC as an advance on your tax. For many subcontractors, the amount deducted is more than the tax they end up owing, which is why a CIS refund is common. The route to that refund runs through your allowable expenses, so understanding both together is worth real money.

Key takeaways

• CIS deductions are advance payments toward your tax, not your final bill.
• Allowable expenses reduce your taxable profit, which can create a refund of tax already deducted.
• You claim the refund through your Self Assessment return or, for limited companies, through payroll and company returns.
• Keep every payment and deduction statement from your contractors.
• Only claim genuine business costs, and keep evidence for each one.

How CIS deductions work

Under the scheme, a contractor deducts a percentage from payments to a registered subcontractor for labour, and pays it to HMRC. The percentage depends on your status. See our guide to CIS deduction rates and the GOV.UK explanation of the Construction Industry Scheme for the current rates. The deduction does not take your costs into account, so it is essentially an estimate. When your tax return is completed, HMRC compares the tax already deducted with the tax you actually owe.

Why a refund can arise

The deduction is taken from your gross labour payment. But your real taxable profit is lower, because you have costs: tools, clothing, travel, insurance and more. You also have your personal allowance. If the tax and National Insurance on your true profit is smaller than the CIS tax already paid, the difference comes back to you. Subcontractors with significant costs, or those who work only part of the year, are the most likely to be owed money.

Expenses a subcontractor may be able to claim

You can generally claim costs that are wholly and exclusively for the business. Typical examples include:

• Hand tools and small equipment.
• Protective clothing and safety gear.
• Work-related travel and vehicle costs, depending on the method you use.
• Public liability and other business insurance.
• Materials you buy and use on a job, where not reimbursed.
• Accountancy fees and some training that maintains existing skills.

Larger purchases like vans or heavy equipment may fall under capital allowances, which work differently. Our general guide to sole trader allowable expenses covers the principles. Travel is an area to be careful with, as the rules on whether a journey counts as business travel can be complicated, so check the current guidance on GOV.UK.

How the refund is claimed

Check HMRC's current guidance for how repayment works for each, because the detail differs.

Worked example (illustrative)

"Dariusz", an illustrative example, is a self-employed bricklayer. Across the tax year, contractors deduct CIS tax from his labour payments, and he records the amounts from his statements. He also tracks his tools, clothing, insurance and mileage. When his accountant completes the return, his taxable profit after those costs is lower than the figure the deductions were based on. The tax already paid through CIS exceeds his actual bill, so HMRC repays the difference.

The numbers in this story are only an illustration. Your own result depends on your income, costs, allowances and the current rates, so do not treat it as a prediction of a refund.

Records that make the claim smoother

Keep each payment and deduction statement from your contractors, along with receipts and invoices for costs. Record income and expenses as you go rather than rebuilding the year afterwards. If your contractor has not given you statements, ask for them promptly. For limited-company subcontractors and contractors, our CIS monthly return deadlines guide explains the filing side. If you are unsure how CIS interacts with a company structure, our CIS service explains what we cover.

Gross payment status and refunds

Some subcontractors qualify for gross payment status, which means contractors pay them without deducting tax. There are conditions to qualify and to keep it, and the details are on GOV.UK. If you have gross payment status, there is no CIS tax to reclaim, but you still pay tax on your profit through your return. If you do not have it and your deductions are high relative to your costs, you are the type of subcontractor most likely to be due a repayment. Check the current eligibility rules rather than assuming you qualify.

Getting the timing right

For sole traders, the return for the tax year ending 5 April is due online by 31 January following. Filing earlier means any repayment is processed earlier too, so there is no advantage in waiting. Because CIS deductions run in tax months from the 6th to the 5th, line up your records to the tax year, not the calendar year. If you are new to Self Assessment, see our guide to the registration deadline so you do not miss the sign-up step.

Be cautious about anyone who promises a refund before looking at your records. What you are owed depends on your own figures, and a genuine adviser will check the numbers first rather than guarantee an outcome.

Materials, tools and what you can and cannot claim

One area worth understanding is the difference between materials and labour. Contractors deduct CIS from the labour element of a payment, not from materials you have bought and been paid back for. If you buy materials for a job, keep the invoices and make sure the way they are invoiced to the contractor is accurate. Tools are typically claimed as an expense if they are low cost and short-lived, or under capital allowances if they are more substantial. Clothing is usually allowable only if it is protective or specific to the job, not ordinary clothes you could wear anywhere. Being clear about these distinctions keeps your claim defensible.

Mileage and travel for subcontractors

Subcontractors often travel between different sites. Whether those journeys are allowable depends on whether the site is a temporary workplace, and the rules can be subtle. Keep a log of dates, destinations and miles, and decide whether to use simplified mileage rates or actual costs for your vehicle. Our guide to mileage versus actual costs explains the comparison, which works the same way for any self-employed driver.

Keeping a CIS log through the year

A simple log makes the year-end return much easier. For each payment, note the date, the contractor's name, the gross amount, the CIS deduction and the net amount you received. Match it against your statements and your bank account every month. If a contractor has deducted tax but not paid it to HMRC, or if a statement is missing, you will notice quickly and can chase it. Add a second log for costs, with the date, supplier, what it was for and the amount, and keep the receipts alongside. By January you will have both halves of the picture ready to go.

Common mistakes

• Losing deduction statements. Without them, proving the tax paid is harder.
• Not claiming expenses. Unclaimed costs mean a smaller refund.
• Claiming private costs. Only business costs are allowed.
• Assuming a refund is guaranteed. Whether you are owed anything depends on your profit and the rules.
• Filing late. Delay pushes the refund back and can bring penalties if you owe.

A well-prepared return can make a real difference to a subcontractor's tax. Our CIS team can help you claim what you are due and keep your records in order. You can contact us to talk through your own position.