CIS in both directions, VAT on new-build versus repairs, and every expense a builder can legitimately claim in 2025/26.
If you are a self-employed builder working under CIS, you may be sitting on a tax refund without knowing it. Contractors deduct 20% from your labour before they pay you, and that money sits with HMRC until you file your Self Assessment return and reclaim whatever was over-deducted. But the CIS story runs in both directions: if you take on other subbies yourself, you are also a contractor and legally responsible for deducting and paying over CIS from their payments. Miss that obligation and HMRC can hit you with penalties on top of the underlying tax, which is the single most expensive mistake builders make.
As a sole trader builder, you pay Income Tax and National Insurance on your net profit: turnover minus allowable expenses. The personal allowance for 2025/26 is GBP 12,570, so the first GBP 12,570 of profit is tax-free. Above that, you pay 20% Income Tax up to GBP 50,270, then 40% on anything higher. Class 4 National Insurance sits on top at 6% on profits between GBP 12,570 and GBP 50,270, then 2% above that.
The complication unique to building work is that your income rarely arrives cleanly. You may take a deposit in one tax year, draw down stage payments across several months, and then hold a retention that is not released for six or twelve months after practical completion. HMRC taxes you on income you have received or invoiced (cash basis or accruals basis respectively), so the timing of those retentions and deposits genuinely affects which tax year they fall into. Getting this wrong creates phantom profit in one year and a shortfall in the next.
Using the sole trader tax calculator alongside your records will show you, at any point in the year, what your likely tax bill is shaping up to be, taking into account the lumpy nature of building cashflow.
Most guides treat CIS as something that happens to you. For a builder of any size, it is something you are responsible for operating as well.
When you work for a main contractor, they deduct 20% from the labour element of every invoice before paying you. Materials you have supplied are excluded from the deduction, which is one reason it is worth splitting your invoices clearly between labour and materials. The deducted amount is paid to HMRC on your behalf and shows up on monthly statements your contractor is obliged to send you. Keep every one of these statements; you need them when you file your Self Assessment return to reclaim any over-deduction. Use the CIS tax calculator to see exactly how much credit you should be claiming.
The moment you engage another self-employed person to carry out construction work and you yourself are working under CIS, you become a contractor for CIS purposes. That means:
Failing to operate CIS as a contractor is HMRC's most penalised builder error. Penalties start at GBP 100 per late monthly return and escalate to GBP 3,000 if returns are more than twelve months late, on top of interest on late payments. This is separate from your own Income Tax liability, so the two can stack up fast.
Once your taxable turnover hits GBP 90,000 in any rolling twelve-month period, VAT registration is compulsory. Building work is not a single VAT rate, which is where many builders come unstuck.
New-build domestic properties qualify for the zero rate (0%) on both labour and materials incorporated into the building. This is genuinely valuable: you charge no VAT but can reclaim VAT on everything you buy, putting you in a repayment position with HMRC.
Repairs, maintenance and renovation of existing domestic buildings are standard-rated at 20%, with some reduced-rate exceptions (for example, certain residential conversions and energy-saving installations).
The Domestic Reverse Charge applies to most B2B construction services where both parties are VAT-registered and the services fall within CIS. Under the reverse charge, you do not add VAT to your invoice; instead, the contractor you are working for accounts for it. This affects your cashflow because you are no longer collecting and paying VAT on those supplies. If you are used to a VAT repayment position because of new-build zero-rating and then take on CIS B2B work, the reverse charge can shift that position unexpectedly.
Given the interaction between zero-rating, standard-rating and the reverse charge, a VAT-registered builder doing mixed work genuinely benefits from keeping job-type records, not just turnover records.
The allowable expenses list for a builder is longer and more specific than most trades. Every item below is deductible against your profit when it is wholly and exclusively for the business.
| Expense category | What to claim | Notes |
|---|---|---|
| Materials, aggregates, timber and fixings | Full cost of materials purchased for client jobs | Must be specifically for a job, not a general stock of personal-use materials |
| Payments to sub-contractors | Net payments plus CIS deductions you make on their behalf | The gross invoice amount is your deductible cost, not just what you hand over |
| Plant and tool hire | Hired machinery, scaffolding, access equipment | Hire costs are revenue expenses; bought plant may be claimed under Annual Investment Allowance |
| Van and vehicle costs | Mileage at 45p per mile (first 10,000 miles) or actual costs method | Actual costs suit higher-mileage builders; choose one method per vehicle and stick with it |
| Plant transport | Fuel and haulage for moving heavy plant between sites | Often overlooked; keep fuel receipts and note the plant being moved |
| Public liability and contract works insurance | Full premiums | Contract works insurance (covering works in progress) is trade-specific and fully deductible |
| Scaffolding and skip hire | Full hire cost per job | Usually pass-through costs; deduct the gross amount even if recharged to the client |
| CITB levy | Construction Industry Training Board levy if applicable | Allowable as a business expense; check your levy liability if your wage bill exceeds the threshold |
| Trade memberships and fees | FMB, NFRC, NHBC registration, scheme fees | Deductible if required for trading or maintaining qualifications |
| Site safety equipment and PPE | Helmets, hi-vis, safety boots, harnesses | Fully deductible; not deductible for purely private clothing |
| Phone and broadband (business proportion) | Proportion of dual-use bills attributable to business | Document your apportionment method |
| Accountant and bookkeeping fees | Full cost | Includes MTD-compliant software subscriptions |
Note the materials row carefully: your gross sub-contractor invoice is your deductible expense, not the net amount after CIS. The CIS you deduct and pay to HMRC on their behalf was still money you owed them for work done.
Take a sole trader builder with a turnover of GBP 120,000 in 2025/26. He runs two domestic extension projects and one commercial fit-out, paying three sub-contractors throughout the year.
Income: GBP 120,000 (after the contractor has deducted CIS at 20% on labour; he has received statements showing GBP 18,000 deducted from his own labour income)
Allowable expenses:
| Item | Amount |
|---|---|
| Materials, timber, fixings | GBP 34,000 |
| Sub-contractor payments (gross) | GBP 22,000 |
| Van costs (actual method) | GBP 4,800 |
| Plant and scaffold hire | GBP 6,500 |
| Public liability and contract works insurance | GBP 1,900 |
| Skip hire | GBP 800 |
| CITB levy and FMB membership | GBP 600 |
| Accountant fees | GBP 900 |
| Total expenses | GBP 71,500 |
Net profit: GBP 120,000 minus GBP 71,500 = GBP 48,500
Income Tax:
Class 4 NIC: GBP 35,930 at 6% = GBP 2,156
Total tax and NIC before CIS credit: GBP 9,342
CIS credit applied: minus GBP 18,000 already deducted by his contractor
Result: HMRC owes him GBP 8,658. He files his Self Assessment return and claims that back, or has it set off against his January payment on account.
This is why the CIS credit on your Self Assessment return is not a bonus; it is your own money sitting with HMRC. Missing it or under-claiming it because you lost subbie statements is money left on the table.
Planning your quarterly cashflow around lumpy building payments is also easier with a quarterly cashflow planner built for sole traders.
From April 2026, if your total self-employment and property income exceeds GBP 50,000, you must use MTD-compatible software and submit quarterly digital updates to HMRC. Builders earning over GBP 50,000 are almost certainly in scope from day one. The threshold drops to GBP 30,000 from April 2027.
For a builder, the quarterly update is not a quarterly tax payment; it is a digital summary of income and expenses sent to HMRC four times a year, with a final end-of-year declaration replacing the current Self Assessment return. The tax bill itself still crystallises in January.
The practical impact for builders is significant:
The sole trader quarterly submissions guide explains exactly what goes into each quarterly update and which records HMRC expects you to keep.
Not operating CIS when paying subbies. This is the big one. Builders who take on subbies without registering as a contractor with HMRC, verifying sub-contractors, filing monthly returns and paying over deductions face cumulative penalties that dwarf the original deduction amount. HMRC has enforcement teams focused on construction, and subbie payments are easy to cross-reference against the subbies' own returns.
Claiming net subbie costs instead of gross. You deduct the full gross invoice as an expense, not just what you physically paid. The difference goes to HMRC on the subbie's behalf, but it was still your cost for the work.
Losing CIS deduction statements. Every statement from a contractor is worth its face value as a tax credit. Losing them means filing without the credit or chasing the contractor for replacements before the January deadline.
Mixing new-build and repair VAT rates without tracking job type. If you do both zero-rated and standard-rated work, you must know which turnover is which. An incorrect VAT return that applies zero-rating to repair work is a civil penalty waiting to happen.
Not setting aside tax on retention income. A retention released in the spring of the following tax year still needs to be declared. Builders who treat unreleased retentions as invisible until the cash arrives can face a surprise tax bill.
Conflating personal and business vehicle costs. If you use your van privately at all, you must either use the mileage rate or apportion actual costs. Claiming 100% of running costs on a van with any private use is a common trigger for HMRC enquiries in the construction sector.
A builder who has had GBP 18,000 of CIS deducted on GBP 90,000 of labour, but whose actual tax bill is only GBP 9,000, is owed GBP 9,000 by HMRC. Filing the return is the only way to get it back.
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