CIS for Subcontractors, Explained Simply

Part 1What CIS is, and whether it's you

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The Construction Industry Scheme (CIS) is HMRC's way of collecting tax from construction work as it's paid. Under it, a contractor takes money off a subcontractor's payment and sends it to HMRC as an advance towards that subcontractor's tax and National Insurance.

The key thing to get straight is which one you are, and you can be both:

• Subcontractor: you do construction work for another business and get paid by them. This guide is for you.
• Contractor: you pay other subcontractors to do construction work. If you do that, you have separate duties (verifying, deducting, monthly returns) covered briefly in the VAT & CIS guide.

CIS covers most construction work to buildings and structures: site prep, groundworks, building, alterations, repairs, decorating, demolition and installing systems like heating and lighting. Some jobs are outside it (for example purely architecture and surveying, scaffolding hire without labour, carpet fitting, and making materials off-site).

Part 2Registering as a subcontractor

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Registering for CIS as a subcontractor isn't strictly compulsory. But not registering is expensive, because an unregistered subbie is deducted at 30% instead of 20%. That's why virtually everyone registers.

Before you register for CIS you need to be set up with HMRC for the work itself:

• Sole trader: register as self-employed for Self Assessment first; you'll get a Unique Taxpayer Reference (UTR). Then add CIS using your UTR and National Insurance number.
• Limited company: register the company for CIS using the company UTR; CIS suffered is handled through your payroll, not Self Assessment (see Part 6).

Once you're registered, contractors can verify you with HMRC, which tells them to deduct at 20% rather than 30%.

Part 3The three deduction rates

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There are three CIS rates, and which one applies to you depends on your registration status:

Rate	Who it applies to
0%	Subcontractors with gross payment status: paid in full, no deduction; you settle all your own tax later (see Part 7).
20%	Subcontractors registered for CIS and verified by the contractor. The standard rate for most subbies.
30%	Subcontractors not registered, or who can't be verified by HMRC. Register and verify to drop to 20%.

The deduction comes off the labour part of each payment (Part 4), not the whole invoice, and the contractor pays it over to HMRC on your behalf.

Part 4Labour vs materials: the split that saves you

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This is the part subbies most often lose money on. CIS is only deducted from the labour and non-material element of your payment. The direct cost of materials you supply, along with plant hire, consumable stores and fuel for plant, is excluded and paid to you in full.

So how you write your invoice directly affects how much gets withheld. Show materials as a separate line, and only the labour gets the deduction. Roll everything into one figure, and the contractor may deduct from the lot, over-deducting and leaving you to claw it back from HMRC later.

The £200 withheld is only on the labour. If you'd lumped the £1,400 together and CIS came off all of it, you'd have had £280 deducted: £80 of your materials money tied up with HMRC until you reconcile it. Over a year of jobs, that adds up.

Part 5Deduction statements & records

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Every time a contractor makes a CIS deduction, they must give you a payment and deduction statement (usually monthly) showing the gross amount, the materials they treated as excluded, and the amount deducted. These are gold: they're your proof of tax already paid.

• Collect and keep every statement. If you reach year-end without them, you can't easily prove what was withheld, and reclaiming gets painful.
• Check the figures. Make sure the materials were excluded and the right rate (20% not 30%) was used. Mistakes happen, and they're your money.
• If a contractor won't give you a statement, chase it; they're legally required to provide one. As a backstop you can ask HMRC for help reconstructing your deductions.

Part 6Getting your money back

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The deductions aren't gone. They're tax paid in advance. How you reclaim them depends on how you trade:

Sole traders & partnerships

You report your CIS deductions on your Self Assessment tax return. HMRC sets the total deducted against the Income Tax and National Insurance you owe for the year. Because CIS is taken off your turnover before expenses, many subbies have had too much withheld and are due a refund after their allowable costs and personal allowance are taken into account.

Limited companies

A company can't reclaim CIS through Self Assessment. Instead you record the CIS suffered through your payroll's real time information (RTI) reporting (an Employer Payment Summary), and HMRC offsets it against the company's PAYE, National Insurance and CIS liabilities. Anything left over can be refunded after the tax year ends.

Part 7Gross payment status

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Gross payment status means contractors pay you in full, with no CIS deducted: you then settle all your tax through your normal returns. It helps cash flow a lot, but you have to qualify and stay compliant to keep it.

To get it, HMRC looks at three things (broadly):

• The business test: you run a genuine construction business in the UK, paid mainly through a bank account.
• The turnover test: your construction labour turnover (excluding materials and VAT) meets the minimum: £30,000 for a sole trader, £30,000 per partner/director for partnerships and companies, or a £100,000 whole-business alternative. Check the figures are current on GOV.UK before applying.
• The compliance test: you've filed returns and paid your tax, CIS and VAT on time (VAT was added to the test in April 2024). HMRC reviews this regularly, and slipping up can cost you the status.

Part 8Mistakes that cost subbies money

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None of these are exotic. They're the everyday slips that leave your money sitting with HMRC:

• Not registering, paying 30% when you could pay 20%, lending HMRC the extra all year.
• Lumping materials in with labour, letting CIS be deducted from money it shouldn't touch.
• Losing the deduction statements, then struggling to prove what was withheld at year-end.
• Forgetting to reconcile or claim the refund, leaving your own money sitting with HMRC.
• Assuming CIS = tax done. It's an advance, not a final settlement; you still file and may owe more or be owed back.
• Mixing up CIS and VAT. On B2B construction work the VAT Domestic Reverse Charge can apply as well; they're separate rules that often land on the same invoice.

Part 9Your quick checklist

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If you work under CIS as a subcontractor, run through this:

• Am I registered for CIS so I'm deducted at 20%, not 30%?
• Do my invoices show materials separately from labour?
• Am I collecting and checking every payment and deduction statement?
• Do I know how I reclaim: Self Assessment (sole trader) or payroll/RTI (company)?
• Am I filing on time and reconciling so I actually get any refund I'm owed?
• If I'm on gross status, am I setting tax aside and staying compliant?
• Have I checked whether the VAT Reverse Charge also applies to the job?

This guide is general information for UK subcontractors, current to the best of our knowledge in 2026. Tax rules, rates and thresholds change, and how they apply depends on your specific circumstances and how you trade. It is not tax, accounting or legal advice. Always confirm your position with HMRC or a qualified accountant before relying on it. TradeDraft accepts no liability for decisions made on the basis of this guide. Questions: hello@tradedraft.co.uk.

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