Under CIS, building contractors must deduct tax from payments to self-employed subcontractors and pass it to HMRC: 20% for registered subcontractors, 30% for unregistered ones, and 0% for those with gross payment status. The deductions are advance payments towards the subcontractor's income tax and NI.
Because 20% is taken off gross labour income with no allowance for expenses or the Personal Allowance, most CIS subcontractors overpay during the year and are due a refund after filing Self Assessment; four-figure refunds are common. Estimate yours with the CIS Tax Calculator.
A subcontractor invoices £30,000 of labour and the contractor passes £6,000 (20%) to HMRC. With £5,000 of expenses, the real liability is £2,486 income tax plus £745.80 Class 4 on the £25,000 profit, £3,231.80 in total. Filing the return releases the difference: a refund of roughly £2,768. CIS workers who skip filing are usually leaving four figures with HMRC.
