If you work as a subcontractor in the construction industry, CIS affects your cash flow on every single job. The Construction Industry Scheme means contractors have to deduct tax from your payments before you see the money. Get the basics right — register, separate your materials, keep your deduction statements — and you’ll avoid paying more tax than you need to. Get it wrong, and 30% of your earnings vanishes before it hits your bank account.
Who Does CIS Apply To?
Anyone working in construction as a subcontractor for a contractor. The scheme covers most construction work: building, alterations, repairs, decorating, demolition, civil engineering. It doesn’t cover architecture, surveying, or manufacturing building materials off-site.
And “contractor” under CIS isn’t just big building firms. Any business spending more than £3 million a year on construction work must operate CIS, even if construction isn’t their main thing. Property developers, housing associations, government departments — they all count.
CIS Deduction Rates
Three rates, and the difference between them is real money:
- 20% (standard): For registered subcontractors. Applied to the labour element only (materials are excluded if listed separately on your invoice).
- 30% (higher): For unregistered subcontractors. Deducted from the entire payment. Ouch.
- 0% (gross payment status): For subcontractors who meet HMRC’s turnover, compliance, and business tests. No deduction at all.
On a £2,000 payment, an unregistered sub loses £600. A registered one loses £400. Registration is free and takes about 10 minutes. There is genuinely no reason not to do it.
How to Register
Call HMRC on 0300 200 3210 or register online through your Government Gateway account. You’ll need your NI number, UTR, and business details. Usually processed within a few days.
Want gross payment status? You’ll need to pass three tests: a turnover test (minimum £30,000 net construction turnover as a sole trader), a compliance test (tax returns and payments all up to date), and a business test (you’re actually running a business in the UK).
How It Works in Practice
You submit an invoice to the contractor. They verify your CIS registration with HMRC before paying. They deduct the applicable rate from the labour portion, pay you the net amount, and send the deducted tax to HMRC on your behalf. They must give you a payment and deduction statement showing the breakdown.
Keep every single deduction statement. You’ll need them to reclaim any overpaid tax. Lose them, and you’re in for a headache.
Reclaiming Overpaid CIS
CIS deductions are advance payments towards your tax bill. When you file your self-assessment return, your actual liability is calculated and all CIS deductions are offset against it. If the deductions exceed what you owe (common for sole traders with business expenses), you get a refund.
If you trade through a limited company, CIS deductions offset against your PAYE and NI liabilities. Any excess can be reclaimed from HMRC.
Common Mistakes
- Not separating materials on invoices: If you lump labour and materials into one figure, CIS gets deducted from the whole lot — including materials. Always list them separately.
- Not keeping deduction statements: No statements, no proof of what’s been deducted, big problems reclaiming overpaid tax.
- Not registering: The jump from 20% to 30% is entirely avoidable. Register before your first CIS payment.
- Forgetting to file self-assessment: CIS doesn’t remove the obligation to file a tax return. You still need to file and report your CIS income, even if all tax was deducted at source.
Calculate Your CIS
Our free CIS calculator shows your net payment after deductions, estimates your annual tax position, and helps you work out whether you’re likely to get a refund at the end of the year.