Reclaim your 20% or 30% CIS deductions through Self Assessment, understand gross payment status, verification and allowable expenses, and get ready for MTD.
The Construction Industry Scheme is unusual because tax comes off your money before you ever see it. If you lay bricks, fit kitchens, plaster, do groundwork, roofing, scaffolding or any other construction work as a subcontractor, the contractor who pays you is required to deduct 20% (or 30%) from your labour and hand it to HMRC under your name. That deduction is not a final tax. It is a payment on account against the Income Tax and National Insurance you owe for the year, and the only way to settle the difference is to file a Self Assessment return.
The crucial point most subcontractors miss is that the deduction is calculated on your gross labour, before any of your costs come off. Your real tax is worked out on your profit, which is much lower. That gap is why the typical CIS subcontractor does not owe HMRC at the end of the year, they are owed money back. This guide explains how the scheme works, how to claim your refund, when 30% becomes 20%, how gross payment status changes everything, and exactly what you can deduct.
When a contractor pays you, they first verify you with HMRC, then deduct tax from the labour element of your invoice and pay it over on a monthly CIS return. They give you a payment and deduction statement (often called a CIS statement or voucher) showing your gross pay, the materials, and the amount deducted. Keep every one of these, because they are your proof of tax already paid.
For 2025/26 your actual tax is calculated normally: the personal allowance covers the first GBP 12,570 of profit, then 20% to GBP 50,270, 40% to GBP 125,140 and 45% above, with the allowance tapering between GBP 100,000 and GBP 125,140. Class 4 National Insurance is 6% on profit between GBP 12,570 and GBP 50,270 and 2% above, with Class 2 settled through Self Assessment. Scottish subcontractors pay Scottish rates across six bands (19/20/21/42/45/48%) with an S tax code; Welsh subcontractors use a C code at rates currently matching the rest of the UK, while NIC stays UK-wide.
This is the heart of CIS and the reason a return is worth filing carefully. The 20% is taken off your turnover. Your tax is due on your profit. Once you deduct your personal allowance and your business expenses, the tax actually due is usually far less than the 20% already collected, so HMRC owes you the difference.
Consider a subcontractor invoicing GBP 40,000 of labour over the year. The contractor deducts 20%, so GBP 8,000 has already gone to HMRC. But after the GBP 12,570 personal allowance and, say, GBP 7,000 of genuine expenses, the real Income Tax and Class 4 bill is nowhere near GBP 8,000. The gap comes back as a refund. Use the CIS tax calculator to estimate your own refund before you file, and the sole trader tax calculator to sanity-check the underlying tax on your profit.
CIS is only ever deducted from labour, never from materials, plant hire passed on at cost, or VAT. If you supply your own materials, the contractor should split your invoice and only apply the deduction to the labour portion. Getting this wrong, by letting the contractor deduct 20% off the whole invoice including materials, means too much tax has been taken and you have effectively lent HMRC money interest-free until you reclaim it.
Always invoice with materials shown separately, keep the receipts, and check each CIS statement to confirm the deduction was calculated on labour alone. When you file, the materials you paid for are an allowable expense in their own right, so they reduce your taxable profit as well as being excluded from the deduction base.
You claim your CIS tax back by filing a Self Assessment return (the self-employment pages, plus the CIS deduction box). The process is:
The single biggest mistake is reporting income net of the deduction. Always report the gross figure and enter the CIS separately, otherwise you double-count the relief and your figures will not reconcile with HMRC's CIS records.
An expense is allowable when incurred wholly and exclusively for your trade. For construction trades the list is dominated by tools, travel, protective gear and materials.
| Expense | What qualifies | Notes |
|---|---|---|
| Tools and equipment | Hand tools, power tools, batteries, blades, consumables | Larger tools may go through the Annual Investment Allowance |
| Protective clothing | Hi-vis, hard hats, gloves, safety boots, knee pads, masks | Specialist PPE only, not everyday clothing |
| Van and travel | Van running costs or business mileage, parking, tolls | Home-to-regular-site commuting is not allowable |
| Materials | Materials you bought and supplied on a job | Also excluded from the CIS deduction base |
| Plant and equipment hire | Diggers, mixers, scaffold, access platforms, skips | Deductible where hired for the work |
| Insurance | Public liability and tools/equipment cover | Core cover for a subcontractor |
| Subscriptions and training | CITB, CSCS card, trade body fees, ticket renewals | Updating existing skills is allowable |
| Phone and admin | Business share of mobile, stationery, software | Exclude the private proportion |
| Accountancy fees | Bookkeeping and Self Assessment preparation | Fully deductible |
Travel is often the largest deduction for a mobile subcontractor, but the rules bite. Travel between sites and to temporary workplaces is allowable; ordinary commuting from home to a single regular site is not. You can either claim actual van running costs (fuel, insurance, repairs, road tax) with a private-use adjustment, or use HMRC's simplified mileage rate. Pick one method per vehicle and stick with it for that vehicle. Keep a mileage log either way.
Everyday clothing such as jeans and ordinary boots is never allowable even if you only wear it on site. Lunches and food while working are generally not deductible. Fixed-base commuting to your normal site is excluded. And anything with a private element, like the personal share of your phone or van, must be apportioned out.
If you have a strong, compliant business you can apply for gross payment status, where contractors pay you in full with nothing deducted and you settle your whole tax bill through Self Assessment. To qualify you must pass three HMRC tests:
Gross status is a big cashflow win because nothing is held back, but it shifts the entire burden onto you. You must budget rigorously for a single large tax and NIC bill, including payments on account, rather than having tax drip-fed to HMRC through deductions. HMRC also reviews your compliance annually and can withdraw the status if you fall behind.
For a CIS subcontractor, your refund lives in two places: the expenses you record and the materials your contractor kept out of the deduction. Track both as you go and the return pays you back.
Take a registered subcontractor invoicing GBP 40,000 of labour, paid under standard 20% CIS, with a van and the usual tools.
Gross income: GBP 40,000 (labour, before CIS)
CIS already deducted at 20%: GBP 8,000
Allowable expenses:
Taxable profit: GBP 40,000 minus GBP 6,500 = GBP 33,500
Income Tax: GBP 33,500 minus GBP 12,570 = GBP 20,930 at 20% = GBP 4,186
Class 4 NIC: GBP 20,930 at 6% = GBP 1,256
Total tax and NIC due: GBP 5,442. But GBP 8,000 of CIS was already deducted, so HMRC refunds the difference: GBP 2,558 back (before any Class 2 NIC adjustment). The refund exists entirely because the 20% was charged on turnover while the real tax falls on the much smaller profit. Run your own numbers through the CIS tax calculator, and if a PAYE job or wrong tax code is muddying things, check it with the tax code checker.
Making Tax Digital for Income Tax replaces the annual return with quarterly digital submissions and a year-end finalisation. The thresholds are based on gross income, before CIS deductions and before expenses:
Because the test is on turnover, many subcontractors are inside MTD sooner than they assume. Rather than gathering a shoebox of CIS statements and receipts each January, you record income and costs digitally as you go and send HMRC a summary every quarter using compatible software. The upside is that your refund position becomes visible through the year instead of being a surprise at filing time. Our guide to MTD for sole traders walks through the quarterly rhythm, and if you work a specific trade our builder tax guide goes deeper on trade-specific costs.
Reporting income net of CIS. Always report gross income and enter the CIS deducted separately, or you double-claim the relief and HMRC's records will not match yours.
Losing CIS statements. Each payment and deduction statement is your proof of tax paid. Lose them and you may struggle to claim the full deduction; ask contractors for duplicates immediately.
Letting 30% run on unfixed. If you are being deducted at 30%, register for CIS and confirm your details match HMRC's so you drop to 20% and stop over-lending to HMRC.
Not separating materials. Materials should be outside the deduction base and are also an expense. Mixing them into labour means too much tax is taken.
Forgetting payments on account under gross status. Once on gross payment status you face the full bill plus payments on account, so set money aside every month.
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