If you are a subcontractor in the Construction Industry Scheme, your contractor takes 20% off your labour before it reaches your bank — or 30% if you are not registered, or HMRC cannot match your details. That money goes straight to HMRC as an advance payment against your tax bill.

Here is what the design of the scheme quietly guarantees: 20% of gross labour is almost always more tax than you actually owe. Which means most subbies spend the year lending HMRC money for nothing, and only get it back when they file. File in April and it comes back in weeks. File in January and you have waited the best part of a year for your own cash.

Why the maths lands in your favour

The deduction is blunt on purpose. It is taken off your labour before anything you are entitled to claim: no personal allowance, no van, no tools, no insurance, no phone, no accountancy fee. Your real bill, worked out properly on your tax return, has every one of those in it.

These are the 2026/27 figures your return will actually use:

  • Personal allowance £12,570 — the first £12,570 of profit is taxed at nothing at all.
  • Income tax 20% on taxable income up to £50,270, then 40% above that.
  • Class 4 National Insurance 6% on profits between £12,570 and £50,270, then 2% above.
  • Class 2 National Insurance £3.65 a week, and it is voluntary — profits of £7,105 or more are treated as though you had paid it, so your state pension record is protected either way.

So on the part of your profit above £12,570 you are paying 26% (20% tax plus 6% Class 4), you are paying nothing on the £12,570 below it, and nothing at all on your costs. Your contractor deducted 20% of the lot.

A worked example: £48,000 of labour

Worked example — illustrative, 2026/27 rates. A self-employed groundworker invoices £48,000 of labour across the year, all of it through CIS contractors.
  • Gross labour invoiced: £48,000
  • CIS deducted at 20% and paid to HMRC by the contractors: £9,600
  • Allowable expenses (van running costs, tools, protective clothing, public liability insurance, phone, accountancy): £6,000
  • Taxable profit: £48,000 − £6,000 = £42,000
  • Income tax: (£42,000 − £12,570) × 20% = £5,886
  • Class 4 NI: (£42,000 − £12,570) × 6% = £1,765.80
  • Total actually due: £7,651.80
  • Already paid through CIS: £9,600
  • Refund: £1,948.20

That is not an unusual result — it is the arithmetic working exactly as the scheme intends. And it gives you a decision rule worth remembering: every £1,000 of allowable expenses you fail to claim costs you £260 of refund (20% tax plus 6% Class 4). A year of unrecorded diesel and unclaimed tools is a four-figure hole. Our expenses A–Z is the list to work through before you file.

The payments-on-account bill CIS subbies usually dodge

Most sole traders with a bill over £1,000 get hit with payments on account — next year's tax demanded in advance in two instalments, which turns that first January into 150% of what they expected.

There is a second test, and CIS subbies usually pass it: if 80% or more of your tax was already collected at source, HMRC does not ask for payments on account. CIS deductions are collected at source. In the example above, £9,600 of deductions covered the whole £7,651.80 bill, so there are no payments on account to worry about at all.

Where that breaks down is a mixed year: a chunk of non-CIS work, plant hire income, or a second trade alongside the site work. Then the deductions can fall below 80% of the bill and the January instalment appears. Worth knowing in November, not on 31 January.

What the 20% should be taken from — and often isn't

The deduction applies to labour, not to the whole invoice. Before applying the rate, the contractor is required to strip out VAT, the cost of materials you paid for yourself, consumable stores, plant hire for the job, fuel used on the job (travel fuel is not included), and manufacturing or prefabricating costs.

Where it goes wrong. You invoice £3,000: £2,400 labour and £600 of materials you bought yourself. The correct deduction is 20% of £2,400 = £480. A contractor who deducts 20% of the full £3,000 takes £600 — £120 too much on one invoice. You do get it back through your tax return, but only if you have the statement to prove it. Across a year of a materials-heavy trade, that error runs to thousands sitting with HMRC.

The 30% rate is an avoidable pay cut

The higher 30% rate applies when you are not registered as a subcontractor, or when HMRC cannot match the details the contractor gave at verification to the record they hold for you. On £48,000 of labour that is £14,400 deducted rather than £9,600 — an extra £4,800 of your cash locked up until you file.

The fix is usually five minutes of admin. Register as a CIS subcontractor with HMRC, then make sure every contractor holds exactly the name, Unique Taxpayer Reference and National Insurance number HMRC has for you. The common cause of an unmatched verification is a trading name being given where HMRC expects the individual's name.

If your compliance record is clean and your turnover is high enough, it is also worth asking about gross payment status: contractors pay you in full with no deduction, and you settle everything through Self Assessment. It is the best possible position for cashflow, and it demands that you never file or pay late — HMRC reviews the status and can take it away.

The paperwork that turns into money

Your proof is the payment and deduction statement. Contractors must give you one within 14 days of the end of each tax month. Tax months run from the 6th to the 5th, so the month ending 5 June has a statement deadline of 19 June.

Three things to do with them:

  1. Check each one shows the gross payment, the materials figure, and the amount deducted — and that the materials figure matches what you actually invoiced.
  2. Chase missing ones in the month they are due, not the following January, when the site has moved on and the person who ran the payroll has left.
  3. Keep them. Business records must be kept for at least five years after the 31 January filing deadline for that year's return.

File in April, not January

The tax year ends on 5 April and you can file the return for it from 6 April. Once the return is processed, HMRC repays the overpayment to your bank account — sometimes after a security check, which is another reason not to start in the last week of January when the whole country is filing.

Filing early does not mean paying early: anything you owe is still not due until 31 January. So for a subbie in a refund position, there is no argument for waiting at all. The key tax dates calendar has the rest of the year mapped out.

Your checklist for this week

  1. Line up every payment and deduction statement for the tax year and find the gaps.
  2. Check whether you are being deducted at 20% or 30% — and if it is 30%, call HMRC today.
  3. Check that materials you paid for are being excluded from the deduction on your statements.
  4. Total your expenses: van, mileage or running costs, tools, PPE, insurance, phone, subscriptions, accountancy.
  5. Put the return in as soon after 6 April as your figures are straight.

Two ways subbies lose the refund

Refund agents. Firms charging 20–30% of the refund for a standard tax return are common in construction. On the £1,948 refund above, a 30% fee is £584 — for a job that should be part of what you already pay an accountant. Read carefully before signing anything that assigns your repayment to a third party, because it means HMRC pays them first and you wait for what is left.

Unclaimed expenses. The refund is made of expenses. At 26p in the pound, an unrecorded year of tools and diesel is the difference between a good refund and an average one.

CIS work is core to what we do: deduction statements tracked through the year in FreeAgent, expenses captured properly, the return filed in April and the refund chased. It is built into our packages from £19 + VAT a month, and there is more on how we work with the trades on our CIS subcontractor page. Get started and we will have your first return in early.