CIS Subcontractors

CIS Subcontractors by Iwan Morgan

Are you a self-employed subcontractor working under the Construction Industry Scheme (CIS)? If so, you may be due a self-assessment tax refund.

As the tax year 5th April 2025 is coming to an end, ensuring your self-assessment tax return is completed as soon as possible can have many benefits. In this blog, I’ll explain why it’s important for CIS subcontractors to get your records in order as early as possible and how doing so could put money back in your pockets.

Topics Covered in this blog:

What is CIS and how does it work?

What is a CIS tax refund?

The benefits of submitting your tax return early?

What do CIS subcontractors need to provide?

How can LHP help you?

Final Thoughts

What is CIS and how does it work?

CIS is a UK tax scheme introduced by HMRC that was designed to regulate the payments from contractors to subcontractors in the construction industry. The scheme was introduced with the aim of reducing tax evasion in the construction sector and underreporting of income became a concern.

Under CIS, contractors are required to deduct tax from the payments due to you, the subcontractor, before you are paid. The contractor pays the tax to HMRC on your behalf and these deductions act as an advanced payment of your income tax and national insurance contributions for the given tax year.

A CIS registered subcontractor will have 20% (or 30% for unregistered workers) deducted at source by the contractor. This CIS deduction only applies to portion of the income that relates to labour costs, and it does not apply to materials.

This means for a CIS subcontractor (at the 20% rate for this example) invoices the contractor for labour an amount of £1,000, CIS of £200 (£1,000 x 20%) will be deducted, meaning the amount you will receive as a payment from the contractor is reduced to £800. The £200 CIS deduction is then paid across to HMRC on your behalf by the contractor.

It is also worth noting that self-employed subcontractors can apply for the gross payment status which means that the contractor will pay you in full without CIS deductions. However, your business must meet HMRC’s compliance and turnover criteria.

What is a CIS tax refund?

This refers to the refunds that can be reclaimed on overpaid tax during the tax year. This is largely due to the fact that CIS deductions does not account for any of your business expenditure nor your personal allowance. Another reason that you may be entitled to a refund is when the contractor has deducted CIS at the higher the higher rate of 30% as the subcontractor is not a registered CIS subcontractor.

The benefits of submitting your tax return early?

1. Faster refund As you will have had tax deducted at source, it often leads to overpaid tax and filing the return early means HMRC can process your refund sooner, often within 2-4 weeks.

2. Beat the rush Submitting your tax return early avoids the last-minute rushing in January when HMRC’s system is at its busiest as well as having more time to fix any errors, gather any missing information and ensuring all allowable business expenses are properly claimed. Last-minute returns could also mean that any potential refunds take longer for HMRC to process.

3. Better cash flow Early submission can also aid in the business’ cash flow management. Not only will you receive any potential refunds sooner, it will also give the business a cash flow injection which will aid you with business costs or investments in new a business vehicle. Should you be in a position where you have underpaid tax, early preparation of your tax return will aid you in preparing and planning for the tax liability that will be due in January 2026.

What do CIS subcontractors need to provide?

As a CIS subcontractor you would need to keep records of the invoices raised to your clients as well as the Payments and Deductions statement provided to you by the CIS contractor.

Bank statements for the tax year to show proof that income has been received, and business expenses have occurred.

Receipts and invoices for relating to business expenditure. Typical business expenses for a subcontractor include but not limited to:

Materials, supplies and consumables used for work.
Business insurance such as public liability insurance, professional indemnity insurance and insurance taken out covering tools.
A portion of your telephone and interest costs if used for work.
Courses attended relating to construction work, e.g. CSCS card, health and safety training)
Work clothing and personal protective equipment

Travel costs:

If you are using your personal vehicle for work, then you would need to keep a log of the business mileage incurred during the tax year and tax relief would be available at £0.45 per mile for the first 10,000 miles and at £0.25 per mile for any mileage thereafter.
If you have a business vehicle then deductions can be made for fuel costs, vehicle insurance, servicing and any repairs (after considering any private use).
Other costs such as any public transport costs, parking fees (excluding any fines) and any toll charges and congestion charges if they relate to the business.

Advertising and marketing costs such as business cards, website design and online advertising.

If you do administrative work from your home, you may be able to claim a percentage of your home costs, costs include:

Proportion of rent/mortgage payments
Utility bills
Council tax
Office furniture and stationery.
Accountant and professional fees
Bank charges and interest for business accounts and/or loans.

How can LHP help you?

At LHP accountants, we can help ensure that all allowable items are included in your tax return to ensure the right tax reliefs are claimed, help you to organise and keep track of your income and expenses easily and provide you with tax advice.

We can also ensure compliance as your agents, reducing the risk of errors that may trigger an enquiry from HMRC, delays and/or penalties.

As accountants, we can take care of the process so that you don’t have, freeing your time to spend it on your business.

Act Now!

If you are a self-employed CIS subcontractor with CIS being deducted at 20% or 30%, submitting your self-assessment tax return early is a wise decision. It means any refunds are received faster, less stress and better financial planning.

Instead of waiting until the January deadline, get your records in order and avoid the last-minute rush and to not leave your hard-earned income with HMRC longer than necessary.

If you have any questions about how these changes could affect you, or if you need tailored advice, don't hesitate to reach out to our team today

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