Most subcontractors working under CIS overpay tax. That's not an exaggeration, it's how the scheme is built. HMRC takes 20% off your invoices at source (30% if you're not registered), and that deduction takes no account of your tool costs, van expenses, materials, or personal allowance.
The refund only comes back if you claim it properly, and every year thousands of construction workers either claim less than they're owed or don't claim at all.
That gap between what gets deducted and what you actually owe is the main reason CIS accountants exist. Here's how the scheme works, what your obligations are on each side of it, and where an accountant earns their fee.
What the Construction Industry Scheme Actually Is
CIS is HMRC's way of collecting tax from the construction sector upfront rather than trusting everyone to declare it later. Under the scheme, contractors deduct money from payments made to subcontractors and pass it directly to HMRC. Those deductions count as advance payments toward the subcontractor's tax and National Insurance.
The scheme covers most construction work carried out in the UK, including site preparation, alterations, repairs, decorating, and demolition. It doesn't cover everything on a building site though. Architecture and surveying, carpet fitting, and delivering materials all sit outside CIS. Plenty of businesses get this boundary wrong and either deduct when they shouldn't or fail to deduct when they should, and both mistakes create problems with HMRC later.
One point that catches people out: you don't have to be a construction company to count as a contractor. A business outside construction that spends heavily on construction work over a rolling period can be pulled into the scheme as a "deemed contractor" and takes on the same obligations.
Contractor Obligations Under CIS
If you pay subcontractors for construction work, the compliance burden sits with you. In practice that means:
Registering as a contractor with HMRC before you take on your first subcontractor.
Verifying every subcontractor before paying them. HMRC tells you which deduction rate applies: 20% for registered subcontractors, 30% for unregistered ones, or 0% for those with gross payment status. Skip verification and deduct the wrong rate, and the liability for the shortfall lands on you, not the subcontractor.
Filing monthly CIS returns by the 19th of each month, covering all payments and deductions in the previous tax month. A return one day late triggers an automatic £100 penalty, rising to £200 after two months, then £300 or 5% of the deductions (whichever is higher) at six and twelve months. These penalties stack per return, so a contractor who falls three months behind isn't facing one fine, they're facing a pile of them.
Giving subcontractors deduction statements each month so they have evidence of what was taken. Without these, your subcontractors struggle to claim their refunds, and you'll spend next April fielding phone calls asking for paperwork you should have issued months ago.
Deductions are calculated on the labour element of an invoice, not the whole thing. Materials the subcontractor paid for directly come off before the percentage is applied. Getting that split wrong is one of the most common errors on monthly returns, and it usually means the subcontractor has had too much taken off. Aspire's payroll, CIS and bookkeeping support handles this monthly cycle so the deadline and the deduction maths are never something you carry alone.
What Subcontractors Need to Know
For subcontractors, the scheme is simpler day to day but expensive when handled badly.
Register with HMRC and you're deducted at 20%. Don't register and you lose 30% of every labour invoice before it reaches your bank account. Registration takes minutes and the 10% difference is pure cash flow, so there's rarely a good reason to stay unregistered.
The bigger opportunity is the annual refund. Because CIS deductions ignore your expenses and personal allowance, a sole trader subcontractor who's had 20% deducted all year has almost always paid more than their actual tax bill. The refund gets claimed through Self Assessment, and the size of it depends heavily on how well your expenses have been recorded. Fuel, tools, protective clothing, insurance, phone costs, accountancy fees: each category you fail to log is money you've handed HMRC for nothing. Limited company subcontractors work differently, offsetting CIS deductions against their PAYE liabilities during the year and reclaiming any surplus after it ends.
Then there's gross payment status, which lets you receive payments with no deductions at all. To qualify you need to pass HMRC's compliance test (returns and tax paid on time), a business test, and a turnover test, and HMRC reviews the status annually. For a subcontractor with healthy turnover, gross payment status transforms cash flow. Losing it through a few late filings is one of the more expensive administrative failures in the industry.
Where a CIS Accountant Actually Adds Value
A CIS accountant isn't just someone who files your return. The useful ones do four things:
- Run the monthly cycle for contractors — verifications, deduction calculations, returns filed before the 19th, statements issued. This is repetitive, deadline-driven work where a single missed month costs more than a year of fees.
- Maximise subcontractor refunds by capturing expenses throughout the year rather than reconstructing them from memory each January. The difference between a well-prepared claim and a rushed one is routinely several hundred pounds.
- Get the classification questions right — whether specific work falls inside CIS, how to split labour and materials, and whether a subcontractor relationship risks being treated as employment. HMRC pays close attention to false self-employment in construction, and reclassification comes with backdated PAYE and NIC bills.
- Manage gross payment status, both the initial application and the ongoing compliance record that keeps it.
If you're a one-person subcontractor with tidy records, you can handle Self Assessment yourself. The case for an accountant strengthens fast once you're a contractor filing monthly returns, running both CIS and PAYE, or sitting on a couple of years of unclaimed refunds. Refund claims can generally go back four tax years, so if you've never claimed, the first conversation with an accountant is often the most profitable one.
The Bottom Line
CIS shifts the tax collection burden onto contractors and quietly overtaxes subcontractors until they claim it back. Contractors should treat the monthly return deadline as immovable and verification as non-negotiable. Subcontractors should register, keep expense records that would survive an HMRC query, and claim every refund they're entitled to. Whether you do that yourself or hand it to a CIS accountant, the worst option is the common one: letting deductions pile up at HMRC and never asking for your money back.
If you want your CIS returns, refunds or gross payment status handled properly, speak to ASPIRE UK TAX ACCOUNTANTS. ASPIRE UK TAX ACCOUNTANTS is an ACCA registered UK practice supporting contractors, subcontractors and construction businesses with CIS, bookkeeping, Self Assessment, VAT, payroll and HMRC compliance.
