CIS Deductions: How Subcontractors Can Reclaim Withheld Tax

What Is CIS and Why Is Tax Being Deducted From Your Payments?

The Construction Industry Scheme (CIS) requires contractors to deduct money from subcontractor payments and pass it directly to HMRC. These deductions count as advance payments towards your tax and National Insurance bill. If you are registered under CIS, the standard deduction rate is 20%. If you are not registered, contractors must deduct 30% — a strong reason to register if you have not already.

CIS applies to sole traders, partnerships, and limited companies working in construction. The process for reclaiming withheld tax differs depending on your business structure, so read the section most relevant to you.

For Sole Traders and Partnerships: Reclaim Through Self Assessment

As a sole trader, you reclaim CIS deductions through your annual Self Assessment tax return. Here is how the process works in practice:

• Your contractor must give you a CIS deduction statement each month showing how much was deducted. Keep every one of these — you will need them.
• When completing your Self Assessment return (due by 31 January following the tax year), you enter your gross CIS income and the total deductions suffered in the CIS section.
• HMRC calculates your overall tax liability and offsets the CIS deductions already paid. If deductions exceed what you owe, HMRC refunds the difference.

For example, if your tax bill for 2025/26 is £3,000 but contractors deducted £5,000 in CIS payments throughout the year, HMRC owes you a £2,000 refund. This is typically paid directly into your bank account within a few weeks of your return being processed.

For Limited Companies: Offset Against PAYE or Request a Repayment

Limited companies cannot reclaim CIS deductions through Self Assessment. Instead, the company offsets deductions suffered against its PAYE liabilities — specifically the tax and National Insurance it owes as an employer.

• Each month, rather than paying your full PAYE amount to HMRC, you can reduce the payment by the CIS deductions your company has suffered that month.
• You do this by including the CIS deductions on your Employer Payment Summary (EPS), submitted through your payroll software before the 19th of the following month.
• If CIS deductions exceed your PAYE liability in a given month, the surplus carries forward to offset future months.
• If at the end of the tax year you still have unused CIS deductions, you can claim a repayment from HMRC by contacting the CIS helpline or writing to HMRC's PAYE office.

It is essential that your company is registered as a CIS subcontractor and that you verify this with HMRC, otherwise contractors may deduct at the higher 30% rate.

Common Mistakes That Delay Repayments

• Missing or incorrect deduction statements: Always chase your contractor for monthly CIS statements. Without them, you cannot prove how much was deducted.
• Mismatched figures: The amounts you declare must match what contractors have reported to HMRC. Discrepancies cause delays and can trigger compliance checks.
• Not registering for CIS: Unregistered subcontractors suffer 30% deductions and cannot access gross payment status. Register at GOV.UK to immediately drop to the 20% rate.
• Late Self Assessment returns: Filing late means your refund is delayed and you may face penalties on top.

Can You Apply for Gross Payment Status?

If you consistently meet HMRC's turnover and compliance tests, you can apply for gross payment status, meaning contractors pay you in full with no deductions at all. The turnover threshold is £30,000 per year for sole traders (£100,000 for most limited companies). You must also have a clean tax compliance record for the previous 12 months. Apply through your Government Gateway account or by calling the CIS helpline on 0300 200 3210.

Key Takeaway

CIS deductions are not a tax you simply absorb — they are an advance on your tax bill and you are entitled to recover any excess. Stay on top of your monthly statements, file on time, and if your cash flow is being squeezed by large deductions, explore whether gross payment status could work for your business.