CIS Explained: What Every UK Subcontractor Needs to Know

What is the Construction Industry Scheme?

The Construction Industry Scheme (CIS) is an HMRC scheme that requires main contractors to deduct tax at source from payments made to subcontractors. The deducted amount is then paid to HMRC on the subcontractor's behalf.

If you work as a subcontractor in the construction industry, CIS affects how you are paid and how you invoice.

CIS deduction rates

• 20% — for subcontractors registered with HMRC under CIS
• 30% — for subcontractors not registered with HMRC
• 0% (gross payment status) — for subcontractors who meet HMRC criteria for gross payment

Use our CIS calculator to quickly work out your deduction and net payment.

Who does CIS apply to?

CIS applies to payments from a contractor to a subcontractor for construction work. A contractor is any business that pays subcontractors for construction work and spends more than £3 million on construction in a 3-year period, or is itself a construction business.

Construction work includes:

• Building, alterations, repairs, extensions, demolition
• Installing heating, lighting, power, water, and ventilation systems
• Internal fitting out (joinery, plastering, painting, tiling)
• Roofing, external cladding, and insulation
• Civil engineering work (roads, bridges, drainage)
• Site preparation, foundations, and landscaping connected to construction

CIS does not apply to work on your own property, professional services (architects, surveyors), or making and delivering materials without installing them. See HMRC's full CIS guide for the complete list.

How to register for CIS

You register as a subcontractor through HMRC. You will need your Unique Taxpayer Reference (UTR) and National Insurance number. Registration brings your deduction rate down from 30% to 20%.

To register, call the CIS helpline on 0300 200 3210 or register online through your Government Gateway account. You will need to be registered for self-assessment first.

To apply for gross payment status (0% deduction), you need to meet turnover and compliance tests — most sole trader subcontractors won't qualify initially, but it's worth checking if your turnover exceeds £30,000. HMRC requires a clean compliance record (all returns filed on time, all taxes paid) and minimum annual turnover of £30,000 for sole traders.

What contractors must do

If you are a contractor (you hire subcontractors), you have specific obligations under CIS:

• Register as a contractor with HMRC before taking on your first subcontractor
• Verify every subcontractor with HMRC before making the first payment — this tells you which deduction rate to apply
• Make CIS deductions from payments for labour (not materials)
• File monthly CIS returns with HMRC by the 19th of each month, reporting all payments and deductions
• Provide payment and deduction statements to subcontractors within 14 days of the end of each tax month
• Pay the deductions to HMRC by the 22nd of each month (19th if paying by post)

Failing to file monthly returns on time results in penalties starting at £100 per return, increasing to £400 after 12 months. See HMRC's contractor obligations page.

CIS invoicing

Your invoices to contractors must clearly show:

• Gross amount (labour only — materials are not subject to CIS)
• CIS deduction amount and rate
• Net payment due
• Materials cost (shown separately, not subject to CIS)

InvoiceAdept handles CIS calculations automatically — see our CIS invoicing feature. You can also use our invoice generator to create CIS-compliant invoices with the correct deduction breakdown.

Materials are not subject to CIS

An important point many subcontractors miss: CIS deductions only apply to the labour element of your invoice. Materials you supply should be listed separately and are not subject to deduction.

Make sure your invoices clearly separate labour and materials to avoid overpaying CIS.

For example, if you invoice £3,000 for labour and £2,000 for materials, CIS at 20% is deducted from the £3,000 labour only = £600 deduction. Your net payment is £4,400 (£2,400 labour after deduction + £2,000 materials in full).

If you do not separate them, the contractor may deduct 20% from the full £5,000 = £1,000. That is £400 more deducted than necessary. You would eventually get this back through self-assessment, but your cash flow suffers in the meantime.

Understanding payment and deduction statements

Your contractor must give you a payment and deduction statement (PDS) within 14 days of each CIS tax month end. The tax month runs from the 6th of one month to the 5th of the next.

The PDS shows:

• The contractor's name and HMRC reference
• Your name and UTR
• The tax month the statement covers
• Gross amount paid
• Cost of materials
• CIS deduction amount

Keep every PDS you receive — you will need them when filing your self-assessment return. If a contractor does not provide a PDS, request one in writing. You need these records to reclaim your deductions.

Claiming back CIS deductions

CIS deductions are not a tax — they are advance payments of your income tax. When you file your self-assessment tax return, the total CIS deducted during the year is offset against your tax bill. If more CIS has been deducted than you owe in tax, you will receive a refund from HMRC.

This is why keeping accurate records of all CIS deductions is essential. Use our self-assessment calculator to estimate your tax position.

To claim CIS deductions on your return, you need to complete the CIS section of the self-assessment form (SA100 supplementary pages). Enter the total deductions from all your PDS documents. HMRC will cross-reference this against what your contractors have reported.

If there is a discrepancy (e.g. the contractor reported a different amount), HMRC may query it. This is another reason to keep your PDS documents and your own invoicing records carefully.

CIS and VAT together

If you are both CIS-registered and VAT-registered, the interaction between the two can be confusing. The key rule is: CIS is deducted from the pre-VAT amount. VAT is added to the full gross amount (labour + materials), and CIS is deducted only from the labour portion before VAT.

if you provide construction services to another VAT-registered business, the VAT domestic reverse charge may apply. Under this rule, you do not charge VAT — the customer accounts for it on their own VAT return. This applies to most CIS-regulated services between VAT-registered businesses.

Common CIS mistakes to avoid

• Not registering. The difference between 20% and 30% deduction is significant. Register as soon as you start subcontracting.
• Not separating labour and materials. This costs you cash flow every single payment.
• Losing PDS documents. Without them, you cannot prove how much CIS was deducted when you file your return.
• Not claiming deductions on self-assessment. Every pound of CIS deducted reduces your tax bill. Missing this is literally leaving money on the table.
• Treating CIS as an extra tax. CIS is not additional tax — it is income tax collected in advance. Your total tax liability is the same whether you work under CIS or not.

Frequently asked questions

Do I have to register for CIS?

Registration is not compulsory, but it is strongly recommended. Without registration, contractors must deduct 30% instead of 20%. That extra 10% is money you will not get back until you file your self-assessment return — potentially 12-18 months later. Register through HMRC's CIS service.

Can I get gross payment status so nothing is deducted?

Yes, if you meet HMRC's criteria: a clean compliance record (all returns filed on time, all taxes paid) and annual turnover of at least £30,000 for sole traders. Apply through HMRC — they will review your record and, if approved, contractors will be told to pay you gross when they verify you.

What if a contractor deducts CIS from my materials?

Ask them to correct it. Show them your invoice with the labour and materials breakdown. If they have already made the payment, they should adjust on the next payment. If not, the over-deduction will be reclaimed when you file your self-assessment — but it is better to get it right at the time. Use our CIS calculator to show them the correct figures.

Does CIS apply if I am a limited company?

Yes. CIS applies to limited companies as well as sole traders and partnerships. However, limited company subcontractors can apply for gross payment status more easily, as the turnover test is £30,000 for the company (which most active companies meet). The contractor still needs to verify your company with HMRC before each payment.

How does CIS work with the domestic reverse charge for VAT?

If both CIS and the VAT reverse charge apply, you invoice without VAT (the customer self-accounts for VAT), and the contractor deducts CIS from the labour portion of the net (pre-VAT) amount. Your invoice should show the gross labour amount, the CIS deduction, and a note that the VAT reverse charge applies.

Get CIS right on every invoice

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