Guides · Updated 2026-10-15
CIS tax refunds: do you pay 40% tax on CIS?
"Do you pay 40% tax on CIS?" and "How does CIS work with tax?" are two of the most-asked CIS questions on Google. The short answer is no: the 20% CIS deduction isn't your tax rate, it's an advance payment. What you actually owe depends on your profit for the year, and many subcontractors get money back. Figures below are the 2026 to 2027 rates for England, Wales and Northern Ireland from GOV.UK, checked 15 October 2026.
CIS deductions are advance payments
GOV.UK says the deductions your contractor takes count as advance payments towards your tax and National Insurance (GOV.UK). On your Self Assessment return you record your total pay before deductions as income, and the total deductions as "CIS deductions". HMRC works out the tax and takes off what's already been deducted. If you've paid too much, HMRC pays it back; if you still owe, you pay by 31 January after the end of the tax year (GOV.UK).
The rates that decide your bill (2026 to 2027)
| Rate | |
|---|---|
| Personal Allowance | First £12,570 tax-free |
| Basic rate Income Tax | 20% on £12,571 to £50,270 |
| Higher rate Income Tax | 40% on £50,271 to £125,140 |
| Class 4 National Insurance | 6% on profits £12,570 to £50,270, 2% above |
| Class 2 National Insurance | Treated as paid if profits are £7,105 or more |
Sources: Income Tax rates, self-employed National Insurance rates. Scotland has different Income Tax bands.
So 40% only applies to profit above £50,270, and only to that slice. And tax is worked out on profit, after your allowable expenses, while CIS was deducted from your labour before expenses. That gap is why refunds are common.
Example 1: basic rate, refund due
A sole trader subcontractor invoices £30,000 of labour in the year and has £4,000 of allowable expenses (van, tools, phone, insurance). Contractors deducted 20% of £30,000 = £6,000.
- Profit: £30,000 − £4,000 = £26,000
- Income Tax: (£26,000 − £12,570) × 20% = £2,686
- Class 4 NI: £13,430 × 6% = £805.80
- Total due: £3,491.80
- Already deducted: £6,000
- Refund: £2,508.20
Example 2: higher rate, close to even
Labour invoiced: £70,000. Expenses: £10,000. Deducted at 20%: £14,000.
- Profit: £60,000
- Income Tax: £37,700 × 20% = £7,540, plus (£60,000 − £50,270) × 40% = £3,892, total £11,432
- Class 4 NI: £37,700 × 6% = £2,262, plus £9,730 × 2% = £194.60, total £2,456.60
- Total due: £13,888.60
- Already deducted: £14,000
- Refund: £111.40
The more of your profit falls in the higher rate band, or the fewer expenses you have, the more likely you are to owe something on top. These examples ignore other income, student loans and payments on account, which can change the result.
How much CIS tax have I paid?
Add up your monthly payment and deduction statements. Contractors must give you one within 14 days of the end of each tax month; ask for a replacement if one's missing (GOV.UK). Keep them all, because HMRC may ask for evidence of your deductions. If you can't get statements from a contractor, GOV.UK explains what to do on the same page.
Limited companies
If you trade through a limited company, the process is different: you take CIS deductions off what the company owes through its payroll, using an Employer Payment Summary, and claim a refund of anything left after the tax year (GOV.UK).
Getting it right
- Put labour and materials on separate lines so CIS isn't taken from materials. See how CIS is calculated.
- Keep receipts for every expense; they reduce your profit, not the CIS deduction.
- Bookkeeping apps such as FreeAgent, Xero and QuickBooks track CIS deductions through the year. FreeAgent is free with a NatWest, RBS, Ulster Bank or Mettle account (checked 15 October 2026).
- Check what's taken from each payment with the free CIS calculator, and work out a day rate that covers tax with the day-rate calculator.
From April 2026, many sole traders also report quarterly: see Making Tax Digital for Income Tax for the dates.
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FAQ
Do you pay 40% tax on CIS?
Only on the part of your profit above £50,270 (2026 to 2027, outside Scotland). The 20% CIS deduction is an advance payment, not your tax rate.
Why do CIS workers get tax refunds?
Because CIS is taken from labour before expenses, and before your £12,570 Personal Allowance is applied. Your real bill is often lower than what was deducted.
When do I get my CIS refund?
After you file your Self Assessment return for the year. HMRC pays any overpayment back once it has processed the return.
Is this tax advice?
No. It's a worked summary of GOV.UK rates checked on 15 October 2026. Ask an accountant about your own figures.