If you work as a subcontractor in construction, 20% of your labour comes off before it reaches you. Most subcontractors get some of it back, and how much depends on things that are decided months before the return is filed: whether you're registered, whether your statements are complete, and whether materials were treated properly. Here's what to check.
Are you registered, and does it matter?
It matters by ten percentage points. A registered subcontractor has 20% deducted from their payments. An unregistered one has 30%.
Registering doesn't change the tax you eventually pay, but the extra 10% sits with HMRC until your return is filed and processed, which for a subcontractor invoicing steadily is real money out of your cash flow for most of a year. If you're not registered, that's the quickest win on this list.
What should be on your monthly statements?
Your contractor must give you a payment and deduction statement each month, within 14 days of the end of the tax month, showing what they paid you and what they took off. Tax months run from the 6th to the 5th, so a statement for the month ending 5 October is due by 19 October.
Those statements are your evidence. Without them, proving what was deducted comes down to bank entries and invoices, which is a slower and weaker argument.
If a contractor won't produce one, you can write to HMRC with your name, address and Unique Taxpayer Reference, the contractor's details, the payment dates involved and why you haven't got the statements. HMRC can credit deductions that were made but never handed over, which is worth knowing if a contractor has gone under.
Is your contractor deducting on the right amount?
Deductions come off your labour, not off everything on the invoice. The contractor should leave out:
- VAT
- Materials you paid for yourself
- Plant hired for the job
- Consumable stores, meaning equipment that's now unusable
- Manufacturing or prefabricating materials
This is the error we see most often, and it always goes the same way: materials get lumped in with labour and 20% is taken off the lot. It's your money, and the way to stop it is to split labour and materials clearly on the invoice every time.
How do you actually get the money back?
If you're a sole trader or in a partnership, through your Self Assessment return. You enter your total income before deductions, and the CIS deductions separately. HMRC work out the tax due and set the deductions against it, and anything over comes back to you. Any balance still owing is due by 31 January after the end of the tax year.
If you work through a limited company, it's different and it catches people out. You claim through payroll, by putting the year-to-date CIS deductions on an Employer Payment Summary alongside your normal Full Payment Submission, and HMRC set them against your PAYE bill. Don't try to use them against your Corporation Tax bill, because that leads to penalties.
Is gross payment status worth applying for?
If your cash flow is tight, often yes. Gross payment status means contractors pay you in full with nothing deducted, and you settle up through your return as normal.
To qualify, HMRC look at three things: that you've paid your own tax and National Insurance on time, that the business does construction work in the UK, and that it runs through a bank account. There's also a turnover test on the last 12 months, ignoring VAT and materials: £30,000 for a sole trader, £30,000 per partner or £100,000 for the partnership, and £30,000 per director or £100,000 for the company.
The trade-off is that nothing is set aside for you through the year. It suits a business with the discipline to put the tax by, and it punishes one that doesn't.
Does Making Tax Digital change anything?
For the reporting, yes. If your income from self-employment and property, before expenses, was over £50,000 in the 2024 to 2025 tax year, you're in Making Tax Digital for Income Tax from 6 April 2026: digital records, compatible software and quarterly updates through the year, with the tax return still due by 31 January. The threshold drops to £30,000 from April 2027 and £20,000 from April 2028.
CIS itself doesn't change. The deductions still come off, and you still claim them back the same way.