If you work as a CIS subcontractor and file a Self Assessment return, the tax your contractor takes off your pay is not a separate tax. It counts as an advance payment towards your Income Tax and Class 4 National Insurance. You report the deductions on your return, HMRC sets them against the tax you owe, and if they come to more than your bill, you get the difference back.
This guide explains where the deductions go, how they are worked out, how they reach your tax return, and how a refund actually happens.
It covers sole traders and partnerships. If you trade through a limited company, the process is different and we explain why near the end.
Where do CIS deductions go?
Your contractor pays them straight to HMRC, where they sit on your tax record as money already paid towards your bill. They are not a fee and you do not lose them. When you file your Self Assessment return, HMRC matches those deductions to your account and offsets them against the Income Tax and Class 4 National Insurance you owe for the year. Whatever is left over is refunded to you.
The contractor hands the money over every tax month and reports it on a monthly CIS return. You see your share of it on the payment and deduction statements they give you. If you are new to the scheme and want the basics first, read what the Construction Industry Scheme is.
How are CIS deductions calculated?
Contractors apply the deduction to your labour charge only, never the whole invoice. The rate is 20% if you are registered for CIS, 30% if you are not, and 0% if you hold gross payment status. That gap between 20 and 30 percent is the single best reason to register for the Construction Industry Scheme before you start invoicing.
Before they apply the percentage, contractors take out the parts of your invoice that do not attract a deduction:
- the cost of materials you supplied
- plant or equipment hired from a third party, plus the fuel to run it
- the CITB levy, where it applies
- VAT, which is handled separately and is never part of the deduction
HMRC’s public guidance on what you must do as a CIS subcontractor sets out the rates and what counts as materials. A worked example shows how it lands in practice.
Worked example: a £2,800 invoice
| Line | Amount |
|---|---|
| Labour | £2,000 |
| Materials | £800 |
| CIS deduction at 20% on the £2,000 labour | −£400 |
| Net payment to you before VAT | £2,400 |
| Deduction credited to your HMRC record | £400 |
The same job for an unregistered subcontractor loses £600 instead of £400, because the 30% rate applies. The £400 (or £600) is not gone. It turns up later as tax you have already paid.
Your payment and deduction statement and how to complete it
Every contractor must give you a payment and deduction statement within 14 days of the end of each tax month. The tax month runs from the 6th to the 5th, so the statement is due by the 19th. It is the document that proves how much you were paid and how much was deducted, and you need it to complete your return and claim any refund.
A correct statement shows:
- the contractor’s name and their employer tax reference
- your name, your Unique Taxpayer Reference, and the verification number where the deduction was at 30%
- the gross amount paid, the cost of materials, and the amount deducted
- the tax month the payment relates to
Contractors complete the statement, not subcontractors, but you should check every field against your own invoices. If the figures do not match, query them straight away, because an error here flows directly into your tax return. HMRC also runs an automated comparison when it captures your return, matching the deductions you claim against what your contractors reported under CIS, so a mismatch can hold up your repayment. Keep every statement for the year. If a contractor will not provide one, ask HMRC for your CIS deduction record so you are not left guessing.
How CIS deductions flow into your Self Assessment return
You add up the deductions from all your statements for the tax year and enter the total in the CIS deductions box on the self-employment pages (SA103) of your return. That total is treated as tax you have already paid, and HMRC subtracts it from the Income Tax and Class 4 National Insurance you owe.
The order matters, so report it like this:
- Enter your turnover as the gross income, the full amount before any CIS deduction, not the net figure that hit your bank account.
- Claim your allowable expenses, such as tools, protective clothing, mileage and insurance, to bring your taxable profit down.
- Enter the total CIS deductions separately as tax already paid.
- HMRC calculates the tax on your profit, applies your personal allowance, then takes off the CIS deductions.
This is exactly the query HMRC describes as setting CIS off against your Income Tax and Class 4 National Insurance. Get the gross figure wrong and you understate your income; forget the deductions box and you pay tax twice on money HMRC already holds.
HMRC applies the credit in a set order. It goes first against the Income Tax and Class 4 National Insurance due on your trading profits for the year the deductions were made, then against any earlier tax you still owe, and only the excess is repaid. The detail sits in HMRC’s manual on claims for credit in SA returns.
How do I submit CIS deductions to HMRC?
As a sole trader you do not submit them on a separate form. You report them inside your annual Self Assessment return, in the CIS deductions box, and HMRC does the rest. File online by 31 January, or on paper by 31 October. If you have never filed before, you first need to register as self-employed and for Self Assessment.
When you get a refund, and how to claim it
A refund happens when your CIS deductions for the year add up to more than your final tax bill for that year and any earlier tax you still owe. It is common for 20% subcontractors who have real expenses and an unused personal allowance, because tax was taken on gross labour all year while your actual liability is lower. You claim it simply by filing your return. There is no separate refund form for sole traders, and no need to wait until the deadline.
When you file, nominate the bank account you want the repayment paid into. You can submit your payment and deduction statements with the return, but you are not obliged to. HMRC works out the position from the figures you report. If your deductions do not fully cover the bill, you pay the balance by 31 January instead.
Repayment timing is a different question, and one our refunds guide already answers in full. For how long a CIS refund takes and how to chase a delayed one, read that page rather than this one.
Can CIS deductions reduce your payments on account?
Not for the current year, and this one catches people out. Deductions taken from your payments during the current tax year cannot be set against your payments on account or balancing charges. They reduce the tax on your trading profits, and any excess is repaid to you as cash instead.
They can still work in your favour next year. Because payments on account are based on the previous year’s liability, a year of heavy CIS deductions usually leaves a lower net bill, and you can apply to reduce next year’s payments on account on that basis. Reduce them too far and HMRC charges interest on the shortfall, so this is a judgement call worth making with an adviser rather than guessing.
Key dates for CIS subcontractors
| Date | What is due |
|---|---|
| Within 14 days of each tax month end, by the 19th | Contractor must give you your payment and deduction statement |
| 5 October after the tax year you started | Register for Self Assessment if you have not already |
| 31 October | Deadline for a paper return |
| 31 January | Deadline for the online return and to pay any balance owed |
| 31 January and 31 July | Payments on account, if HMRC has set them for you |
| From 6 April 2026 | MTD for Income Tax begins for income over the threshold |
The 2026 change is significant for busier subcontractors. Quarterly digital updates replace the single annual return once your qualifying income passes the threshold. We cover what that means for the trade in MTD for Income Tax for subcontractors.
Limited company subcontractors work differently
If you trade through a limited company, you do not reclaim CIS deductions on a Self Assessment return. The company sets the deductions off against the PAYE and CIS it owes as an employer, through the Employer Payment Summary, and reclaims any excess at the end of the tax year through its payroll. HMRC handles company repayments under a separate process, set out in its manual for company subcontractors. The mechanics in this guide apply to sole traders and partnerships. If you run a limited company and the deductions are stacking up, that is a payroll and cash flow problem worth getting right.
Where IBISS & CO comes in
Most CIS refunds are lost to two things: gross income reported as net, and expenses left unclaimed. Both are avoidable. Our construction accountants reconcile your statements, file the return correctly, and make sure every deduction and expense is on it. If you are owed money, we want it back in your account, not sitting with HMRC.
Frequently Asked Questions
Where do CIS deductions go?
Your contractor pays them to HMRC, where they sit on your tax record as an advance payment towards your Income Tax and Class 4 National Insurance. When you file your Self Assessment return, HMRC offsets them against the tax you owe and refunds anything left over.
How are CIS deductions calculated?
The deduction applies to your labour charge only, at 20% if you are registered, 30% if you are not, or 0% with gross payment status. Contractors first remove materials, third-party plant hire, the CITB levy and VAT, then apply the percentage to what remains.
How do I complete a CIS payment and deduction statement?
The contractor completes it, not you, and must send it within 14 days of the tax month end. It shows gross pay, materials and the amount deducted. As a subcontractor, check every figure against your invoices and keep each statement for your return.
How do I submit CIS deductions to HMRC?
As a sole trader you report them inside your annual Self Assessment return, in the CIS deductions box on the SA103 pages, not on a separate form. Enter gross income, claim your expenses, then enter the deduction total as tax already paid. File online by 31 January.
Can I use CIS deductions to reduce my payments on account?
Not for the current year. CIS deductions taken this tax year cannot be set against your payments on account or balancing charges; they reduce the tax on your profits and any excess is repaid as cash. You can, however, apply to reduce next year’s payments on account if a year of heavy deductions has left you with a lower net bill.
Can I get my CIS deductions back?
Yes, if your deductions for the year exceed your final tax bill. This is common for 20% subcontractors with allowable expenses and an unused personal allowance. You claim the refund by filing your return and nominating a bank account. No separate refund form is needed for sole traders.
Asim Hussain
Asim Hussain is a senior accountancy professional at IBISS & CO, having joined the firm in 2014.
He leads the accountancy team and specialises in financial planning, business growth strategies, UK accounting standards, Companies Act compliance and HMRC requirements. His experience spans a wide range of sectors, including telecoms, transport, healthcare and fashion.
Last reviewed: August 2026
