CIS tax refunds: are you owed money?

Why CIS subcontractors are often owed money

Under the Construction Industry Scheme (CIS), contractors deduct money from payments to subcontractors and pass it to HMRC. For a registered subcontractor the deduction is 20%. If you are not registered, contractors must deduct 30%. Those deductions are not a final tax bill. They are advance payments towards your tax and National Insurance.

The deduction is worked out on the labour element of each payment, before your own business costs. Your tax, on the other hand, is based on your profit after allowable expenses such as tools, van costs, protective clothing, phone, insurance and training, and after your personal allowance. Once those are taken into account, many subcontractors find that more was deducted during the year than they actually owe. The difference is a refund.

How to check whether you are owed a refund

You cannot tell from your deduction statements alone. You need to compare the total deducted with the tax and National Insurance due on your actual profit. In practice, that means:

1. Gather every payment and deduction statement. Contractors should give you one for each tax month in which they paid you. Check you have one for every contractor and every month you worked.
2. Add up gross payments and deductions. Make sure the totals agree to the money that reached your bank account.
3. Collect your business costs. Receipts and bank records for materials you paid for, tools, vehicle costs, mileage, insurance, phone and other running costs.
4. Work out your profit and tax. This is where the refund appears, or where you find you owe a little more.

Common reasons for larger refunds include significant spending on tools or a van, working only part of the year, having other losses, or having been deducted at 30% because registration was not in place.

Claiming as a sole trader or partner

If you are self-employed, CIS deductions are reclaimed through your Self Assessment tax return. You record your income and enter the total deductions taken by contractors as CIS deductions. HMRC then works out the tax you owe and sets the deductions against it. If more has been deducted than you owe, HMRC pays the difference back. HMRC's guidance on paying tax and claiming back CIS deductions explains the process.

You do not have to wait until the 31 January deadline. Once the tax year has ended on 5 April and you have your figures, you can file early. Filing early is usually the quickest way to get a refund.

Missed previous years?

If you have not filed returns for earlier years, you may still be able to claim refunds for them, but time limits apply and late filing penalties can eat into what you get back. It is worth acting sooner rather than later. Missing tax returns can also lead HMRC to issue estimated assessments.

Claiming as a limited company

Limited companies work differently. A company that has had CIS deductions taken from its income reports them through payroll. Each month it sends its usual Full Payment Submission (FPS) and an Employer Payment Summary (EPS) showing the CIS deductions suffered for the year to date. HMRC sets those deductions against the PAYE, National Insurance and CIS the company owes, and the company pays the balance.

If deductions are left over after the end of the tax year, the company can claim a repayment. HMRC's guidance says a company can claim for a tax year once it has ended, and that HMRC checks the claim against the information contractors have provided. If figures do not match, HMRC may ask for copies of payment and deduction statements and bank records, so accurate EPS submissions throughout the year make a real difference.

Common reasons refunds are delayed

• Deductions on your return do not match what contractors have reported to HMRC.
• Missing payment and deduction statements, or statements showing the wrong UTR.
• Limited companies not claiming deductions on the EPS during the year.
• Outstanding returns or debts with HMRC, which may be offset against the refund.
• Bank details missing or incorrect.

Keep records that support your claim

A good routine makes refunds faster and easier to defend. Keep every statement, reconcile them monthly to your bank account, and keep receipts for business costs. If you use accounting software, set it up to record CIS income correctly so gross payments, deductions and net receipts are all visible. Our team can help with CIS software setup if your current records do not show this clearly.

Should you consider gross payment status?

If your business meets HMRC's tests, gross payment status allows contractors to pay you without deductions. You then pay your tax through your return or Corporation Tax. It can help cash flow, but you need to meet the conditions and keep your tax affairs up to date to keep it. We can look at whether it suits you.

How we can help

Our CIS tax refund service reconciles your statements, works out your profit and files your claim. For sole traders this is part of a Self Assessment tax return. For companies we can also help with payroll and EPS submissions so deductions are claimed during the year. If your records are behind, bookkeeping rescue gets them back on track first.

We work with builders and trades across Kent and the UK. We cannot promise the size or timing of any refund, but we will tell you clearly what your figures show. Get in touch to have your CIS position checked.