Get your CIS deductions back, and stop them landing on the wrong record

A subcontractor paid under deduction hands HMRC 20% of every pound of labour they invoice, before a single expense is counted. On £120,000 of labour in a year that is £24,000 sitting in an HMRC account with somebody's name on it, and the whole question is whose name.

Getting it back is two completely different pieces of machinery depending on whether you trade as a sole trader or through a limited company. A company that uses the sole trader route waits a year and gets nothing. A director whose contractor is still paying the old personal reference can do everything right and still find the money parked somewhere the company cannot reach it.

This page is both routes, the arithmetic that decides how much comes back, and the filing detail that decides which record the deductions land on. Every figure names the regulation, the section or the HMRC manual reference it comes from.

How a subcontractor describes it

A tradesman on the BuildHub forum, describing his own years working under the scheme:

"It meant they deducted tax at source from my payments and I had to declare the CIS tax paid on my tax return and it all worked out at the end of the year, i.e. if I had over paid tax through the CIS deductions I got a refund."

ProDave on BuildHub

That is an accurate description of one of the two structures. He was self-employed, so the tax return was the right instrument and the year end was the right moment. Put identical work through a limited company and the company's own return has no part to play in the claim at all: the credit runs through the payroll scheme, month by month, and waiting for the year end is a choice to lend HMRC the money for eleven more months than you had to.

The fork

The deduction itself is the same on both sides. Under section 61 of the Finance Act 2004 the contractor takes the relevant percentage of the payment other than the direct cost of materials, at 20% if you are registered for payment under deduction and 30% if you are not. What changes is where the credit for it goes.

Two rows in that table are where the money actually goes missing. Companies use the Self Assessment route because a director filed that way for years before incorporating, and sole traders leave the deductions sitting until 31 January when regulation 17 would have released them months earlier.

The sole trader route, with the arithmetic

The deductions are advance payments of Income Tax and Class 4 National Insurance, not a tax in themselves. They go in box 38 of the SA103S self-employment pages, titled "Total Construction Industry Scheme (CIS) deductions taken from your payments by contractors, CIS subcontractors only", and the equivalent box on the SA103F full pages. Partners claim their share through the partnership pages.

Here is a full year for a 2025-26 subcontractor, filed against the 31 January 2027 deadline. The figures are ordinary for a two-man groundworks outfit invoicing labour and supplying some of its own materials.

Three things are worth pulling out of that.

The materials are the reason the deduction overshoots. The contractor withheld 20% of the labour element, but the tax was calculated on profit after £19,400 of costs came out, so the deduction came off a larger base than the liability was calculated on. That gap is structural for anyone who buys their own materials, which is why the CIS credit so reliably turns into a repayment rather than a top-up.

Class 2 National Insurance is not in the total. Since 6 April 2024 there is no Class 2 liability where profits reach the Small Profits Threshold, £6,845 for 2025-26: the contribution year counts towards the state pension and is treated as paid without a payment. Below that threshold the voluntary rate for 2026-27 is £3.65 a week, and paying it is what keeps the year qualifying.

Payments on account disappear. HMRC does not require payments on account where you have already paid more than 80% of the tax you owe at source, and £10,200 against a £7,807.80 liability clears that comfortably. For a subcontractor paid under deduction all year that is the normal position, so the 31 January and 31 July instalments that catch other self-employed people simply do not arise. Where you are also drawing income that has not been deducted at source, they can, and the sections to read are 59A and 59B of the Taxes Management Act 1970.

A Scottish taxpayer runs the same calculation with one layer changed. The CIS credit and the Class 4 National Insurance are UK-wide, but the Income Tax line follows the Scottish bands, where the 42% higher rate starts at £43,662 rather than £50,270.

Not waiting until January

The tax year ends on 5 April and the return can be filed on 6 April. Filing in the first week of the new tax year rather than at the deadline moves a £2,392.20 repayment nine and a half months earlier, which is a genuine working capital decision rather than an administrative one.

Earlier than that, there is form CIS40 for an individual and CIS41 for a partner, which claim repayment of deductions during the current tax year. GOV.UK is blunt about the boundary: "Use your tax return instead of this form if you're making your claim after the end of the tax year." The power comes from regulation 17 of SI 2005/2045, and HMRC's own guidance sets the condition that decides most of these claims: repayment can be made once the accounting period that determines the profit for the year has ended, with the calculation taking account of profits chargeable for the whole year and allowances due up to the date of the claim. HMRC also notes there is no right of appeal against a refusal, and that refusal needs strong grounds. Send the payment and deduction statements with it and the claim answers its own questions.

The limited company route, month by month

A company subcontractor claims through the payroll scheme, and regulation 56 of SI 2005/2045 is the mechanism. The sums the contractor deducted are applied against the company's own Class 1 National Insurance, the PAYE it deducts from its employees, student loan deductions and any CIS the company has itself deducted from subcontractors. CIS340, HMRC's guide to the scheme, puts the monthly practice plainly at 4.13: companies "should simply reduce the amount of PAYE, National Insurance contributions, Student Loan repayments and any scheme deductions they pay over to our accounts office by the amount of CIS deductions made from their income", with the calculation shown on the EPS, and where the deductions exceed the liability the company "should set-off the excess against future payments in the same tax year".

The EPS goes in by the 19th of the following tax month. What is left to pay after the set-off is due by the 22nd, or the 19th if you pay by post.

Here is the first four months of a company suffering deductions on a running site, with a small payroll of the director and two employees.

Four months in, the company has paid HMRC nothing for payroll and is carrying £4,600 of unused credit. Run that to 5 April 2027 with £26,400 of deductions suffered against £13,800 of PAYE and National Insurance, and £12,600 is left over.

That £12,600 has one exit. Regulation 56(5) says HMRC "shall not repay any sum deducted under section 61 of the Act to the qualifying sub-contractor until (a) the tax year in which the deduction was made, has ended; and (b) the qualifying sub-contractor has delivered the return required by regulation 73 of the PAYE Regulations". Under Real Time Information that annual return is the final submission for the year, so the final Full Payment Submission goes in on or before the last payday of the tax year, an EPS closes the year off by 19 April where one is needed, and then the claim can be made. HMRC will pay it to a bank account or set it against Corporation Tax, VAT or PAYE if you ask, and the claim asks for the company name, the PAYE reference, the company Unique Taxpayer Reference and the estimated overpayment. For a current-year claim, HMRC wants the payment and deduction statements and bank statements with it.

The route is the payroll scheme and the CIS repayment claim that follows it, and HMRC says so in one line on the subcontractor guidance: "Do not try to claim back through your Corporation Tax return - you may get a penalty if you do." The Company Tax Return is the one place the scheme does not read the figure from, which is why the £12,600 has to leave through the EPS and the claim rather than the CT600. HMRC will then set the repayment against Corporation Tax if you ask it to, and that is a different thing from claiming it there.

One practical consequence follows from all of this. The monthly relief exists only where there is a PAYE scheme to relieve. A company whose director takes dividends and runs no payroll has nothing to set the deductions against month by month, so an entire year of withheld cash waits for 5 April. Where CIS is being taken from company invoices, a payroll scheme is what converts part of it into monthly cash: in the year set out above that is £13,800 of PAYE and National Insurance the company keeps rather than pays over, arriving in twelve pieces, while the remaining £12,600 waits for 5 April.

The wrong record, and how a year of deductions ends up on it

This is the failure that costs the most and looks like nothing while it is happening.

A sole trader spends four years working for the same main contractor. He incorporates. The invoices now come from the limited company, the money goes to the company account, and the contractor's payroll clerk carries on paying against the reference already in the system, which is the director's personal UTR. Every deduction that year is recorded by HMRC against a personal CIS record. The company files its EPS claiming £26,400 of CIS suffered, and HMRC's CIS record shows £26,400 against an individual.

HMRC's manual describes exactly this at CISR77010: deductions set off against the company's PAYE liabilities turn out on checking to have been "recorded against the personal CIS record of one of the company's directors, or against a partnership", typically because the business changed structure and the contractor was not told.

What happens next is in CISR77610. HMRC's Centralised Employers Team writes to the company asking why the payments sit on another record and allows 28 days for the reply. If the company can show the payments arrived, the position can be accepted: the manual says that "if the company was able to produce copies of bank statements showing receipt of the payments corresponding to the sums shown on the disputed payment and deduction statements, you may accept the situation", and HMRC checks that the company is registered as a CIS subcontractor in its own right. If the contractor genuinely did not know the company existed, the deductions are disallowed on the EPS, the PAYE underpayment becomes payable immediately, and the credit stays with the individual to claim through Self Assessment.

Three moves keep it from starting.

Register the company as a subcontractor in its own right. Subcontractor registration is a once-only event unless the structure changes, and changing from sole trader to limited company is that change. Gross payment status does not travel across either, so it has to be earned again by the new entity. The whole decision, with the numbers on both sides, is in sole trader or limited company, and the registration mechanics are in registering for CIS.

Give the contractor the company details in writing and ask them to re-verify. The contractor needs the company name exactly as registered, the company UTR, the company registration number and the PAYE reference. Verification through HMRC's CIS online service under the new details is what points the deductions at the right record from the next payment onward.

Read the first payment and deduction statement after the change. It carries the reference the contractor used. If it shows the personal UTR, the problem is one payment old rather than one year old, and one email fixes it.

The statement is the whole evidence file

Under CIS340 at 3.15, the contractor has to give you a written statement within 14 days of the end of each tax month, and since tax months run from the 6th to the 5th, that means by the 19th. It has to show the contractor's own name and employer tax reference, the end date of the tax month the payment fell in, your name and UTR, the verification number where you could not be matched, the gross amount paid, the cost of any materials that reduced the amount deducted from, and the amount of the deduction.

Those seven fields are the entire audit trail for the claim, and they matter more than the paperwork instinct suggests, because HMRC checks the claim against the other side. When a Self Assessment return claims CIS deductions, HMRC runs an automated comparison between what you claimed and what contractors reported paying you during the year, described in its manuals at CISR75020 and SAM121230. A contractor who filed a CIS300 late, filed it with the wrong figures or filed it against a different reference produces a mismatch, and the statement in your file is what resolves it in your favour.

Statements go missing. Ask the contractor for another copy and the duplicate has to be clearly marked "Duplicate", which is HMRC's own convention rather than a request you have to justify. Keep the set for at least five years after the 31 January submission deadline for the year they relate to, which is the ordinary record-keeping period for self-employment.

Where a year has gone by with statements missing, deductions on the wrong reference or a repayment that has stalled, an accountant who works with subcontractors will usually recover more than the fee on the first return.

What it costs

There is no monthly subscription on AEC Stack. The platform fee is 2.5% of each invoice processed through the platform, taken when the invoice is paid, so a quiet month costs nothing.

What that buys for this particular job is the record the claim is made from. Your invoices carry the labour, materials, plant and consumables split that the deduction is calculated on, so the CIS base on the invoice and the CIS base on the statement are comparable figures rather than two different guesses. Statements filed against the job they came from turn into a running total of deductions suffered for the tax year, which is the figure the EPS needs each month and the figure box 38 needs each April.

Take your next invoice, split out the labour and the materials in the CIS deduction calculator, and check the figure against the last statement you were sent.