CIS Tax Explained: A Guide for Subcontractors

Q: What is CIS and who does it apply to?

CIS stands for the Construction Industry Scheme. It is a tax deduction scheme operated by HMRC that applies to payments made by contractors to subcontractors in the construction industry. If you are a self-employed subcontractor working for a contractor in construction, the contractor must deduct tax from your payments and pass it to HMRC on your behalf. CIS applies to all construction work including building, alterations, repairs, decorating, demolition, and civil engineering. It does not apply if you are employed directly by the contractor as an employee.

Q: What are the CIS deduction rates?

There are three CIS deduction rates. Registered subcontractors have twenty per cent deducted from the labour portion of their payments. Unregistered subcontractors have thirty per cent deducted. Subcontractors with gross payment status have zero per cent deducted and receive their full payment. The deductions are applied only to the labour element of the payment, not to materials if they are shown separately on the invoice. Registering for CIS is free and reduces the deduction rate from thirty to twenty per cent, so there is no reason not to register.

Q: How do I register for CIS?

To register for CIS as a subcontractor, you need to contact HMRC. You can register online through your Government Gateway account, by phone on the CIS helpline (0300 200 3210), or by post. You will need your National Insurance number, your Unique Taxpayer Reference (UTR) number, your business name and trading address, and your business type (sole trader, partnership, or limited company). Registration is free and typically takes a few days to process. Once registered, your deduction rate drops from thirty per cent to twenty per cent.

Q: How do I get gross payment status under CIS?

To qualify for gross payment status, you must meet three tests. The business test requires that your construction work makes up a significant part of your business turnover, or that your turnover from construction work exceeds thirty thousand pounds per year for sole traders. The turnover test requires minimum annual turnover of thirty thousand pounds for sole traders or thirty thousand pounds per partner for partnerships. The compliance test requires that you have filed all tax returns on time, paid all tax due on time, and have no outstanding tax debts with HMRC. You can apply through your Government Gateway account or by contacting HMRC directly.

Q: How do I reclaim CIS deductions?

CIS deductions are effectively advance payments of your income tax and National Insurance. You reclaim them through your Self Assessment tax return at the end of the tax year. When you complete your tax return, you declare your total income and the total CIS deductions made from your payments. If the CIS deductions exceed your tax and National Insurance liability for the year, HMRC will refund the difference. To support your claim, keep all CIS payment and deduction statements from your contractors. If you are VAT registered, CIS deductions do not affect your VAT return — they are a separate matter.

Q: Does CIS apply to materials on an invoice?

CIS deductions apply only to the labour portion of a payment, not to materials, provided the materials cost is shown separately on the invoice. If you submit an invoice for one thousand pounds labour and five hundred pounds materials, the contractor deducts CIS at twenty per cent from the one thousand pounds labour element only, which equals two hundred pounds. You receive one thousand three hundred pounds (eight hundred pounds net labour plus five hundred pounds materials). If materials are not itemised separately, the contractor must apply CIS to the full invoice amount. Always separate labour and materials on your invoices to minimise deductions.

The Construction Industry Scheme — CIS — is one of the most misunderstood parts of running a trade business in the UK. Many subcontractors know that money gets deducted from their payments, but do not fully understand why, how much, or how to get it back. Others avoid subcontracting work entirely because they are confused about the tax implications. That is money being left on the table.

This guide explains CIS in plain English — what it is, how it works, how to register, what gets deducted and when, how to reclaim your deductions, and how CIS affects the way you invoice and quote for work. If you work as a subcontractor in construction, or if you hire subcontractors, this is essential knowledge.

What Is CIS?

CIS stands for the Construction Industry Scheme. It is a system run by HMRC that requires contractors in the construction industry to deduct tax at source from payments made to subcontractors. The deducted tax is passed to HMRC and counts as advance payment towards the subcontractor's income tax and National Insurance liability.

CIS was introduced because HMRC found that many self-employed construction workers were not paying their tax. By requiring contractors to deduct tax at the point of payment, HMRC ensures that some tax is collected regardless of whether the subcontractor files their return on time.

Who Counts as a Contractor?

Under CIS, a contractor is anyone who pays subcontractors for construction work. This includes:

Main contractors and builders who hire subcontractors
Property developers who engage tradespeople directly
Housing associations, local authorities, and government departments
Businesses that spend more than three million pounds on construction in a twelve-month period (even if construction is not their main activity)

A sole trader builder who hires a plasterer, electrician, or plumber as a subcontractor is acting as a contractor for CIS purposes and must make deductions and file monthly returns.

Who Counts as a Subcontractor?

A subcontractor is anyone who is self-employed and carries out construction work for a contractor. This includes most tradespeople working on a self-employed basis — builders, plumbers, electricians, plasterers, roofers, decorators, tilers, landscapers, and labourers. If you work for a main contractor or builder on a job-by-job basis and are not an employee, you are almost certainly a subcontractor under CIS.

CIS Deduction Rates

There are three deduction rates under CIS. The rate that applies to you depends on your registration status.

Status	Deduction Rate	What It Means
Registered subcontractor	20%	The contractor deducts 20% from the labour element of your invoice
Unregistered subcontractor	30%	The contractor deducts 30% — registering for free saves you 10%
Gross payment status	0%	No deductions — you receive your full payment

The deductions are not an additional tax. They are advance payments of your income tax and National Insurance. You get them back — either as a reduction in the tax you owe at the end of the year, or as a refund if the deductions exceed your tax liability.

How to Register for CIS

Registration is free and straightforward. You can register online through your Government Gateway account, by calling HMRC on 0300 200 3210, or by post. You will need:

Your National Insurance number
Your Unique Taxpayer Reference (UTR) — you get this when you register for Self Assessment
Your business name and trading address
Your business type (sole trader, partnership, or limited company)

Registration typically takes a few working days. Once registered, your UTR is verified in the HMRC system and any contractor who checks you will see that you are registered — meaning they deduct twenty per cent instead of thirty per cent. There is no cost and no reason not to register if you do any subcontract construction work.

How CIS Deductions Work in Practice

Here is a step-by-step example of how CIS works on a typical job.

Step 1: You agree to do a plastering job for a main contractor. The agreed price is two thousand pounds for labour and five hundred pounds for materials — two thousand five hundred pounds total.

Step 2: You complete the work and submit an invoice for two thousand five hundred pounds, clearly showing two thousand pounds labour and five hundred pounds materials as separate line items.

Step 3: Before paying you, the contractor verifies your CIS status with HMRC. Because you are registered, the deduction rate is twenty per cent.

Step 4: The contractor deducts twenty per cent from the labour portion only. Twenty per cent of two thousand pounds is four hundred pounds. You receive two thousand one hundred pounds (one thousand six hundred pounds net labour plus five hundred pounds materials). The four hundred pounds deduction is sent to HMRC.

Step 5: The contractor gives you a CIS payment and deduction statement showing the gross amount, the deduction, and the net payment. Keep this statement — you need it for your tax return.

Step 6: At the end of the tax year, you file your Self Assessment return declaring your total income and total CIS deductions. The four hundred pounds (and all other CIS deductions during the year) is offset against your tax bill. If you have been deducted more than you owe, HMRC refunds the difference.

Gross Payment Status

Gross payment status is the goal for most established subcontractors. It means contractors pay you the full amount with no deductions — zero per cent CIS. This dramatically improves your cash flow because you are not waiting until the end of the tax year to reclaim deductions.

Qualifying for Gross Payment Status

You must pass three tests:

Business test: You must be carrying on a business in the UK that includes construction work. For sole traders, construction must be a core part of your activity.
Turnover test: Your construction turnover must be at least thirty thousand pounds per year (excluding materials and VAT) for sole traders. For partnerships, it is thirty thousand pounds per partner.
Compliance test: You must have filed all tax returns on time, paid all tax due on time, and have no outstanding tax debts. This is the test that catches most people. Even one late return or late payment can disqualify you.

You can apply for gross payment status when you register for CIS or at any time afterwards. HMRC reviews your status annually and can withdraw it if you fail the compliance test — so keep your tax affairs in order. For more on managing your tax obligations, see our self-assessment tax guide for tradespeople.

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How CIS Affects Your Invoicing

The way you structure your invoices has a direct impact on how much CIS is deducted from your payments. Getting this right can save you significant cash flow.

Always Separate Labour and Materials

CIS deductions apply only to the labour portion of your invoice, not to materials — but only if materials are shown separately. If you submit a single-line invoice for two thousand five hundred pounds with no breakdown, the contractor must apply CIS to the full amount. That is a five hundred pound deduction instead of four hundred pounds. Always itemise labour and materials on separate lines.

Invoice Example

Here is how a CIS-compliant invoice should look:

Description	Amount
Labour — plastering and rendering (5 days)	£2,000.00
Materials — plaster, render, beads, PVA	£500.00
Gross total	£2,500.00
CIS deduction (20% of labour)	-£400.00
Net payment due	£2,100.00

Include Your UTR on Every Invoice

Always include your UTR number on your invoices. The contractor needs this to verify your CIS registration with HMRC. If you do not provide it, the contractor may apply the higher thirty per cent rate until they can verify you. Your invoice should also include your name or business name, address, invoice number, date, and a clear description of the work completed.

How CIS Affects Your Quotes

When quoting for subcontract work, you need to consider CIS in your pricing. The deduction reduces your immediate cash flow, even though you get it back later. Some practical points:

Quote gross amounts. Always quote the full amount before CIS deductions. If you want to earn two thousand pounds for a job, quote two thousand pounds — do not try to gross up to account for the deduction. The CIS deduction is a tax advance, not a cost. You will get it back.

Separate labour and materials in your quote. This sets the expectation from the start that your invoice will be split the same way. It also helps the contractor plan their CIS deductions accurately when managing their cash flow. For guidance on structuring quotes, see our guide on how to write a professional building quote.

Factor the cash flow impact into your business planning. If you have twenty per cent of your labour income held back until the end of the tax year, you need to manage your cash flow accordingly. Some subcontractors increase their margins slightly to offset the cash flow impact, while others plan their tax year to submit their return early and claim their refund as soon as possible after 6 April.

Responsibilities if You Are a Contractor

If you hire subcontractors — even occasionally — you have obligations under CIS:

Register as a contractor with HMRC before making your first payment to a subcontractor
Verify every subcontractor with HMRC before paying them (this can be done online through HMRC's system)
Make the correct deductions from each payment based on the subcontractor's registration status
Submit a monthly CIS return to HMRC by the 19th of each month, reporting all payments made to subcontractors and the deductions applied
Pay the deductions to HMRC by the 22nd of each month (or 19th if paying by post)
Provide payment and deduction statements to each subcontractor showing the gross amount, deduction, and net payment

Failure to comply with contractor obligations can result in penalties from HMRC. If you hire subcontractors regularly, speak to your accountant about setting up the right processes. For more on construction invoicing, see our guide on construction invoice templates.

Reclaiming CIS Deductions

All CIS deductions are reclaimable through your Self Assessment tax return. When you file your return, you declare your total income and the total CIS deductions made from your payments during the tax year. The deductions are offset against your income tax and National Insurance liability.

If the total CIS deductions exceed your tax bill — which is common for subcontractors with significant material costs or those who are registered as limited companies — HMRC will refund the difference. To support your claim, keep every CIS payment and deduction statement you receive from contractors. If a contractor does not provide a statement, request one — you are entitled to it.

The key dates are: the tax year runs from 6 April to 5 April. You can submit your Self Assessment return from the following 6 April. The deadline for online returns is 31 January. If you submit early, you can often receive refunds within four to eight weeks.

Common CIS Mistakes

Not registering. This is the most expensive mistake. An unregistered subcontractor has thirty per cent deducted instead of twenty per cent. Registration is free and takes a few days. There is no reason not to do it.

Not separating labour and materials. If your invoice does not clearly split labour and materials, the contractor must apply CIS to the full amount. This increases your deductions unnecessarily and hurts your cash flow.

Not keeping deduction statements. You need these to reclaim your CIS deductions on your tax return. If you do not have them, reclaiming becomes much harder. Keep a file — digital or physical — of every statement you receive.

Losing gross payment status. If you have gross payment status, protect it by filing all returns on time and paying all tax when due. HMRC reviews your status regularly and will withdraw it if you fail the compliance test. Losing it means going back to twenty per cent deductions on all your subcontract income.

Frequently Asked Questions

What is CIS and who does it apply to?

CIS is the Construction Industry Scheme, a tax deduction system run by HMRC. It applies to payments made by contractors to subcontractors in the construction industry. If you are self-employed and work for a contractor in construction, CIS applies to your payments. It covers all construction work including building, alterations, repairs, decorating, demolition, and civil engineering.

What are the CIS deduction rates?

Registered subcontractors have twenty per cent deducted. Unregistered subcontractors have thirty per cent deducted. Subcontractors with gross payment status have zero per cent deducted. Deductions apply to the labour element only, not materials (if itemised separately). Registration is free and reduces the rate from thirty to twenty per cent.

How do I register for CIS?

Register online through Government Gateway, by phone (0300 200 3210), or by post. You need your National Insurance number, UTR, business name, and address. Registration is free and takes a few days. Once registered, contractors deduct twenty per cent instead of thirty per cent from your payments.

How do I get gross payment status under CIS?

You must pass three tests: the business test (construction is a core activity), the turnover test (at least thirty thousand pounds annual construction turnover for sole traders), and the compliance test (all tax returns filed on time and all tax paid on time). Apply through Government Gateway or contact HMRC. Status is reviewed annually.

How do I reclaim CIS deductions?

CIS deductions are reclaimed through your Self Assessment tax return. Declare your total income and total CIS deductions. The deductions offset your tax bill. If deductions exceed your liability, HMRC refunds the difference. Keep all CIS payment and deduction statements as evidence. Submit your return early after 6 April to get your refund sooner.

Does CIS apply to materials on an invoice?

CIS applies only to labour, not to materials — but only if materials are shown separately on the invoice. If you submit an invoice without a breakdown, CIS is applied to the full amount. Always itemise labour and materials on separate lines to minimise your CIS deductions and protect your cash flow.