Case Study: How One Electrician Almost Got Hit With a £10,000 Tax Bill — Until We Stepped In

This CIS electrician thought everything was sorted.
He gave us his CIS statements. We submitted his tax return.
His refund was confirmed: £1,800 back from HMRC.

But then…

He received a letter from HMRC demanding £10,000.

Yes — ten thousand pounds.
A complete reversal. His £1,800 refund became a five-figure tax liability — instantly.

The Hidden CIS Trap Most Electricians Don’t Know About

Under the Construction Industry Scheme (CIS), subcontractors (like electricians, plumbers, labourers) have 20% of their pay withheld at source. That’s your tax. You’ve already paid it.

But here’s the catch:

If your contractor fails to report it correctly to HMRC, HMRC acts as if you never paid a thing.

That’s exactly what happened here.

What We Discovered

Our client (a subcontracting electrician) provided all his CIS deduction statements from his contractor.
We submitted the tax return in full compliance — showing the accurate deductions.
He was due a £1,800 refund, which made sense based on his earnings and tax withheld.

But HMRC came back with a bombshell:

“You owe £10,000.”

Cue panic.

We immediately investigated.

Turns out, the contractor hadn’t reported the CIS deductions properly to HMRC. So even though our client had the paperwork and had the deductions taken from his money, HMRC had no record of it.

And because of this, they treated the £1,800 refund claim as incorrect — and instead triggered a massive payment on account adjustment combined with penalties and assumptions.

What We Did

Diagnosed the issue quickly

1. Helped the client communicate with their contractor

2. Got confirmation from the contractor that they’d failed to report the deductions

3. Assisted in getting the corrected CIS reports sent to HMRC

4. Submitted clarifying evidence, backed by CIS 340 guidelines (HMRC manual for construction tax rules)

Within weeks, HMRC adjusted the return, acknowledged the contractor’s updated records, and removed the £10,000 debt entirely.

The Final Result

• £0 tax owed

• £1,800 refund reinstated

• One very relieved electrician

• A ticking time bomb defused — just in time

Key Takeaway for CIS Subcontractors:

Even if you’ve had tax taken from your pay, HMRC won’t know it unless your contractor submits it correctly.
And if they don’t — you’re on the hook for money you’ve already paid.

Let that sink in.

HMRC Reference (for Authority)

This situation aligns directly with multiple provisions in HMRC’s official CIS 340 Guide, reinforcing our position and the importance of accurate contractor reporting:

Section 1.6 – Returns

“Each month, contractors must send HMRC a complete return of all the payments they have made within the scheme or tell us that they have made no payments. The return will include:
• details of the subcontractors
• details of the payments made, and any deductions withheld…”

This confirms the legal obligation on contractors to report deductions accurately. Failure to do so distorts HMRC’s tax records for the subcontractor.

Section 4.20 – Missing Records

“We may charge contractors penalties of up to £3,000 if they:
• fail to give statements to subcontractors… recording their payments and deductions
• negligently or deliberately provide incorrect information in such statements”

This section confirms the direct legal consequences of failing to issue accurate CIS statements — the exact issue our client faced.

Section 4.21 – Problems with Deductions

“If things go wrong when a contractor applies deductions, the contractor may need to satisfy us that every reasonable care was taken...
If we refuse to waive payment of the deductions that should have been made, the contractor has the right of appeal against that decision.”

This confirms that if deductions are not reported properly, liability may incorrectly fall on the subcontractor — and it’s then up to the contractor to prove they acted reasonably.

Don’t Be Our Next Case Study

This client got lucky. He asked for help when the first red flag showed up.
Most don’t.
They wait, they panic, and then they pay.

If you work under CIS, you can’t afford to guess.
Talk to a real CIS specialist — and protect yourself from these traps before HMRC decides what you owe.