Reclaiming CIS Deductions: How to Get Your Money Back

CIS deductions are not a tax in themselves -- they are advance payments towards your Income Tax or Corporation Tax liability. If the deductions taken exceed the tax you owe, you are entitled to a refund. Many subcontractors leave money unclaimed because they do not understand the process or miss the deadlines. This guide explains who can reclaim, how to do it, and the common mistakes that delay or prevent refunds.

What Are CIS Deductions?

When a contractor pays a subcontractor under CIS, they deduct tax at source (20% for registered subcontractors, 30% for unregistered) and pass it to HMRC. These deductions are credited against the subcontractor's tax account. They are not an additional tax -- they are a prepayment of Income Tax (for sole traders) or Corporation Tax (for companies).

• 20% deduction for registered (verified) subcontractors
• 30% deduction for unregistered or unverified subcontractors
• Deductions are only applied to the labour element -- materials are excluded
• The contractor pays the deducted amount to HMRC on the subcontractor's behalf
• The deductions are credited to the subcontractor's tax account

Who Can Reclaim CIS Deductions?

Any subcontractor who has had CIS deductions taken from their payments can reclaim the excess if the deductions exceed their tax liability. The reclaim process differs depending on whether you are a sole trader, partnership, or limited company.

• Sole traders: reclaim through your Self Assessment tax return
• Partnerships: each partner reclaims their share through their own Self Assessment return
• Limited companies: reclaim through your Corporation Tax return or by writing to HMRC
• If deductions exceed your tax bill, the excess is refunded
• If deductions are less than your tax bill, they reduce the amount you owe

How to Reclaim as a Sole Trader or Partnership

For sole traders and partners, CIS deductions are reclaimed through the annual Self Assessment tax return. You declare your construction income and expenses as normal, then enter the total CIS deductions suffered during the tax year. HMRC offsets the deductions against your tax liability.

• Complete your Self Assessment tax return for the relevant tax year
• Enter your total gross income from construction work
• Enter the total CIS deductions suffered (from your payment and deduction statements)
• HMRC calculates your tax liability and offsets the CIS deductions
• If the deductions exceed your liability, the excess is refunded
• The refund is usually paid within 4-8 weeks of submitting your return
• You can claim a refund before the 31 January deadline by filing your return early

How to Reclaim as a Limited Company

For limited companies, CIS deductions are offset against Corporation Tax, PAYE, or other tax liabilities. If there is still an excess, you can apply to HMRC for a refund. The process is slightly more involved than for sole traders.

• CIS deductions are first offset against your PAYE/NIC liability for the same period
• If there is an excess after PAYE offset, it carries forward to the next period
• At the end of the tax year, any remaining excess is offset against Corporation Tax
• If there is still an excess, you can apply to HMRC for a CIS refund
• Use form CIS40 (company) or contact HMRC to request the refund
• HMRC may take 40 working days to process a company CIS refund
• Keep all payment and deduction statements as evidence

Payment and Deduction Statements

Contractors are required to give subcontractors a written statement of each payment made under CIS, showing the gross amount, the deduction, and the net payment. These statements are your primary evidence for reclaiming deductions.

• You should receive a statement for every CIS payment from every contractor
• Each statement should show: gross amount, CIS deduction, materials cost, and net payment
• Keep all statements for at least 6 years
• If a contractor does not provide a statement, request one in writing
• Without statements, it is difficult to prove your deduction claim to HMRC
• Digital records of statements are accepted by HMRC

Common Mistakes and Delays

Many subcontractors lose out on CIS refunds because of avoidable errors. The most common problems are missing statements, late returns, and incorrect deduction figures.

• Not keeping payment and deduction statements from contractors
• Entering incorrect deduction totals on your tax return
• Filing your tax return late -- you cannot reclaim until the return is submitted
• Not offsetting deductions against PAYE first (for companies)
• Not realising you are entitled to a refund and leaving money with HMRC
• Failing to chase contractors for missing deduction statements
• Not checking that the contractor actually paid the deductions to HMRC