Claim a refund for CIS deductions

When contractors pay you for construction work, they deduct tax from your payments and send it to HMRC. These deductions are payments on account of your tax liability - they are not additional tax.

At the end of the tax year, you can offset these deductions against your tax bill. If the deductions exceed what you owe, you can claim a refund.

What happens to your CIS deductions

The deductions taken from your payments work like advance tax payments:

• They are held by HMRC against your tax account
• At year end, they offset against your income tax, National Insurance, or Corporation Tax liability
• If deductions exceed your tax bill, the difference is refunded to you
• If deductions are less than your tax bill, you pay the balance

The amount deducted depends on your registration status with HMRC:

How you claim back deductions

The process for claiming back CIS deductions depends on your business structure. Sole traders and partnerships claim through Self Assessment, while limited companies use their payroll.

Keeping records - Payment and Deduction Statements

Your contractor must give you a Payment and Deduction Statement (PDS) within 14 days of the end of each tax month. This statement is essential evidence for claiming back your deductions.

The statement shows:

• Contractor's name and employer reference
• Tax month the payment relates to
• Gross amount of payment (before deductions)
• Cost of materials (if any)
• Amount of CIS deduction made
• Net amount paid to you

Keep all statements for at least 3 years after the end of the tax year they relate to. Without these statements, you cannot prove what deductions were made and may have difficulty claiming them back.

If a contractor does not give you a statement, ask for one in writing. You can report contractors who repeatedly fail to provide statements to HMRC.

When you will receive your refund

Refund timing depends on how you claim:

What if your deductions are wrong

If the contractor has deducted the wrong amount, first check:

• Your registration status: If you are registered but a contractor deducted 30%, they may not have verified you correctly. Ask them to verify your CIS status with HMRC.
• Materials claimed: Deductions should only apply to labour, not materials you paid for directly. If materials were not excluded, raise this with the contractor.
• Calculation errors: Check the statement matches your invoice and the calculation is correct.

If the contractor has over-deducted, you can still claim the full amount back through your tax return. HMRC's records will show what was actually paid to them, regardless of what should have been deducted.

If you have not been paid at all

CIS only covers tax deductions - it does not help if a contractor refuses to pay you for work. If you have a payment dispute with a contractor, this is a commercial matter and you may need to pursue it through the courts or use adjudication.

Common mistakes to avoid

• Limited companies claiming through Corporation Tax: This is wrong and can result in penalties. Always use payroll EPS to claim CIS deductions.
• Not keeping payment statements: Without statements, you have no evidence of deductions made. Keep all PDS documents for at least 3 years.
• Missing the Self Assessment deadline: If you file your return late, you will pay penalties even if you are owed a refund.
• Not claiming deductions at all: Some subcontractors forget to enter CIS deductions on their tax return, missing out on refunds they are entitled to.
• Mixing gross payment and net payment periods: If you gained or lost gross payment status during the year, make sure your records distinguish between periods.