Article by Coconut

If you’re a self-employed subcontractor working for a contractor, Construction Industry Scheme (CIS) tax rules apply.

• By law, the contractor must check the subcontractor’s CIS registration with HMRC and make tax deductions from their wages – 20% (if registered) or 30% (if not).
• Contractors can use HMRC’s online service or commercial CIS software to verify whether a subcontractor is CIS registered.
• As well as paying wages directly to the subcontractor, the contractor must pay deductions taken to HMRC as advance tax payments towards the subcontractor’s Self Assessment tax bill.

All straightforward enough. But, what common tax mistakes do subcontractors make when it comes to tax and the CIS and how can you avoid them?

1. Assuming you don’t have to file a Self Assessment tax return

Just because the contractor has made deductions from your subcontractor wages doesn’t mean things end there. You must still complete a Self Assessment tax return (SA100) each year, as well as supplementary pages self-employment (SA103S or SA103F) if you’re an individual trader/subcontractor. Contractors who are part of an ordinary business partnership must complete the Partnership Tax Return SA800 and each partner’s individual partnership supplementary page SA104S or SA104F, as well as the main tax return (SA100), summarising their income and tax expenses. CIS payments and deductions must not be reported on supplementary employment page SA102, because they’re not earnings from contracted employment.

Need to know!

• From April 2026, HMRC is phasing in Making Tax Digital for Income Tax, initially for those earning gross trading income of £50,000+ a year, then £30,000+ from April 2027 and £20,000+ from April 2028.
• Once you qualify, you must maintain digital financial records of your income and expenses and send quarterly digital summaries to HMRC, with a final confirmation also required after the fourth quarter.
• Making sure you have the right software that enables MTD reporting is essential. Sort this out long before you’re captured by MTD for Income Tax requirements.

2. Not maintaining accurate financial records

Do this from the very start, as it will help you to complete your tax returns. Crucially – it’s also a legal requirement for sole traders. Recording your figures in accounting software is highly recommended. Doesn’t have to be fancy “bells-and-whistles” software. Connect it to your card or bank account and it can really help you to track and claim your tax expenses. Accounting software can also give you greater visibility and control of your cashflow.

• Keeping your monthly CIS statements, expense invoices and receipts in good order is essential. It will make it far easier to complete your Self Assessment tax return accurately, especially if you fully update your financial records (ie accounting software) every month.

Need to know!

HMRC can ask you at any time for proof of your income and expenses, so having a sound, systematic approach to filing your CIS statements, expense invoices and receipts will enable you to quickly provide proof, saving you time and helping you to avoid penalties. You must keep your records for at least five years after the 31 January Self Assessment tax return submission deadline of the relevant tax year.

3. Not getting your Self Assessment tax return done nice and early

The result? The 31 January Self Assessment tax return-filing deadline arrives and you then have to battle it to get your return done, while still having to do your day job and everything else. Stress and panic levels are high. The stuff of nightmares. Because you’re having to rush, your chances of making a mistake increases significantly, especially if your records are a mess. And if you miss the deadline, you automatically have to pay a £100 late-filing penalty, which is very annoying and avoidable.

Top tip!

Using Self Assessment tax return-filing software can really save you a lot of time and effort, while also making mistakes less likely. And you can file your tax return any time after the tax year ends on 5 April, so get it done as soon as you can. Who needs the additional stress?

4. Not claiming all of your allowable expenses

These are costs that HMRC allows you to claim back as tax expenses, because they’re legitimate costs you must pay to do your job as a self-employed sole trader. If you do not claim all of your allowable expenses, you’ll pay too much tax – it’s that simple. There’s a very long list of allowable expenses that subcontractors can claim, which includes tools, protective clothing/safety gear, public liability insurance, trade membership subscriptions, work-related travel, bank charges, accountancy fees, training courses and marketing costs can all be deducted from your income, which helps to minimise your tax bill.

Top tip!

Just because a contractor has taken deductions from your wages, doesn’t mean you’re their employee. You can claim for a wide range of tax expenses. Visit government website GOV.UK for a list of sole trader allowable expenses. You can’t claim personal costs as tax expenses. There are serious consequences for doing so.

5. Failing to consider your National Insurance contributions

CIS deductions only cover Income Tax – they don’t cover National Insurance contributions (NICs). Not considering your NIC payments can mean you pay more tax than you expected. Subcontractors must often pay both Class 2 and Class 4 NICs through Self Assessment return as follows:

• If your profits are £6,845 or more a year, your Class 2 NICs are treated as having been paid to protect your National Insurance record.
• If your profits are less than £6,845 a year, you do not have to pay anything, but you can choose to pay voluntary Class 2 contributions (£3.50 a week).
• If your profits are more than £12,570 a year, you must pay Class 4 contributions of 6% on profits between £12,570 and £50,270 and 2% on profits above £50,270.

6. Not checking to see if you’re due a tax refund

Many subcontractors overpay tax because of CIS, often because deductions made by contractors are higher than your final tax bill once all of your tax expenses and allowances have been claimed. This is another great reason to get your Self Assessment tax return filed as soon as possible, because although you won’t have to pay your tax bill any sooner, it can mean you get a tax refund much sooner. And finding out that you’re due a nice little tax refund is guaranteed to put a broad smile on any subcontractor’s face.

About Coconut

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