How CIS Refunds Work for Subcontractors

Ask a subcontractor about tax and many will say "I usually get a rebate." That's not luck — it's built into how CIS works. Here's why, and how refunds flow under MTD.

Why refunds are so common

Under CIS, your contractor deducts 20% (if registered) from your gross labour payments and pays it to HMRC. Crucially, that 20% is taken before:

• your business expenses (tools, travel, materials, insurance);
• your personal allowance (the tax-free slice of income).

So you're effectively taxed on your turnover, not your profit — and always at 20% even on income that falls in your tax-free allowance. When your real position is worked out, you've usually overpaid.

A simple illustration

	Amount
Gross labour income	£40,000
CIS deducted (20%)	£8,000
Business expenses	£8,000
Personal allowance	£12,570
Taxable profit	~£19,430
Actual tax + Class 4 NIC due	less than £8,000
Likely refund	the difference

The bigger your expenses and the more of your income covered by the personal allowance, the bigger the refund tends to be.

How the refund actually happens

You don't file a separate "refund claim." It comes out of your final declaration:

1. You report your income and expenses (through quarterly updates).
2. At the final declaration, your real tax is calculated.
3. Your CIS deductions are set against that figure.
4. If deductions exceed the tax due, HMRC repays the difference to your bank.

Getting your refund sooner

• File early in the new tax year — the sooner you finalise, the sooner any refund is processed.
• Capture every expense through the year (MTD makes this natural).
• Reconcile your CIS deductions against your remittance statements so the figure HMRC credits is correct — see how to check CIS deductions.

Does MTD change any of this?

No. You report income and expenses through quarterly updates, and CIS deductions are credited at the final declaration as before. MTD changes the reporting rhythm, not the refund mechanism.

Key takeaways

• Refunds are common because 20% is deducted before expenses and your allowance.
• Bigger expenses and use of your personal allowance mean bigger refunds.
• The refund falls out of your final declaration — no separate claim.
• File early and reconcile your deductions to get it right and get it sooner.

This article is general information, not tax advice. Check the CIS rules at gov.uk or speak to your accountant.