How to claim back CIS deductions

General information only. Tax depends on your whole situation, so use HMRC's guidance or an accountant for your own figures.

Why you might be owed money

A contractor takes 20% of the labour part of every payment, from the first pound, all year. Your actual tax bill is worked out differently:

• your allowable business expenses come off your income first (tools, van costs, protective clothing, phone, training and so on);
• the Personal Allowance means you pay no Income Tax on the first slice of profit (see GOV.UK's Income Tax rates page for the current amount); and
• then Income Tax and Class 4 National Insurance apply at their rates.

So if your profit is modest or your expenses are high, the 20% taken up front can be more than you owe, and the difference comes back to you.

Sole traders and partners: Self Assessment

GOV.UK says that at the end of the tax year you send your Self Assessment return as usual, recording:

• your total pay before deductions, as income; and
• the total deductions contractors have taken, as "CIS deductions".

HMRC works out your tax and takes off the deductions. If you still owe tax, you pay it by 31 January following the end of the tax year. If you've overpaid, HMRC repays the difference.

Step by step

1. Gather all your monthly payment and deduction statements for 6 April to 5 April.
2. Add up the gross payments and the deductions. Check the totals against your invoices.
3. Add up your allowable expenses, with receipts.
4. Complete the self-employment section of the return, entering turnover (gross, before CIS), expenses and CIS deductions.
5. Submit. Filing online early (from 6 April) means any refund arrives sooner. You don't have to wait until January.

Illustrative example

Say a labourer invoices £30,000 in the year, has £20,000 of that as labour subject to 20% deductions (£4,000 taken) and £10,000 from domestic work with no CIS, and has £3,000 of expenses. Their profit is £27,000. Whether they get money back depends on the Income Tax and National Insurance due on £27,000 under that year's rates, compared with the £4,000 already paid. Run your own numbers with HMRC's tools rather than relying on rules of thumb.

If you stop trading part way through a year, GOV.UK says you may be able to claim a refund of that year's deductions early, using the sole trader or partner form.

Limited companies: through payroll

A company doesn't use its Corporation Tax return for this. GOV.UK says to use the company's payroll scheme: send your Full Payment Submission (FPS) as usual, and at the same time an Employer Payment Summary (EPS) with the year-to-date CIS deductions. HMRC sets the deductions against what the company owes in PAYE. Any excess can be carried forward within the same tax year, and after the year ends you can claim a refund. Keep a record of how deductions were used (GOV.UK mentions form CIS132), and keep your statements.

Don't put CIS deductions on the Corporation Tax return. GOV.UK warns you may get a penalty if you do.

Getting refunds faster

• File early in the tax year rather than near the deadline.
• Make sure every statement is accounted for. Missing deductions mean a smaller refund.
• Check that your UTR and name match on every statement.
• Keep receipts for your expenses in case HMRC asks.
• Beware of "CIS refund" firms charging high percentage fees for a simple return, and never share your HMRC login.

Avoiding deductions altogether

If your business is established and your turnover is high enough, you can apply for gross payment status, which means you're paid in full and pay your tax yourself.