CIS Deductions Explained: A Subcontractor Guide

If you work as a subcontractor in the UK construction industry, money is being taken from your pay before you even see it. That's CIS — the Construction Industry Scheme — and understanding how it works is essential for managing your cash flow and making sure you're not paying more tax than you need to.

This guide breaks down CIS deductions in plain English: what they are, how much gets taken, how to reduce them, and how to claim back any overpayments.

What Is CIS?

The Construction Industry Scheme is HMRC's tax collection system for the construction sector. It requires contractors to deduct money from payments they make to subcontractors and pass that money directly to HMRC.

It's essentially a way for HMRC to collect tax in advance. Rather than trusting every self-employed builder, plumber, and electrician to save up for their tax bill, the government takes a chunk at source.

The deducted money counts as an advance payment towards your:

• Income Tax
• National Insurance contributions

So it's not "extra" tax — it's tax you'd owe anyway, just collected earlier.

Who Does CIS Apply To?

CIS applies to anyone working in the construction industry as a subcontractor, which covers a huge range of trades:

• Bricklaying and masonry
• Carpentry and joinery
• Plastering and rendering
• Plumbing and heating
• Electrical work
• Painting and decorating
• Roofing
• Scaffolding
• Groundwork and civil engineering
• Demolition
• Floor and wall tiling

If you're doing any of this work for a contractor (rather than directly for a homeowner), CIS almost certainly applies.

What Counts as a "Contractor"?

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

• Building and construction companies
• Property developers
• Local authorities and government bodies
• Housing associations
• Large businesses spending over £3 million per year on construction (even if that's not their main trade)

Does CIS Apply to Domestic Work?

Generally, no. If a homeowner hires you directly to do work on their own home, CIS doesn't apply. CIS kicks in when you're working for a business or contractor in the construction chain.

The Three CIS Deduction Rates

Here's where it gets practical. There are three possible deduction rates, and which one applies to you depends on your registration status with HMRC.

20% — Standard Rate (Registered Subcontractor)

This is what most subcontractors pay. If you're registered for CIS with HMRC, your contractor will deduct 20% from the labour portion of your invoice.

Key point: the deduction applies to labour only, not materials. If your invoice is £1,000 for labour and £300 for materials, the 20% deduction applies to the £1,000 — so £200 is deducted, and you receive £1,100 (£800 labour + £300 materials).

30% — Higher Rate (Unregistered Subcontractor)

If you haven't registered for CIS with HMRC, your contractor must deduct 30% from the labour element. Using the same example above, that would be £300 deducted instead of £200 — a £100 difference on a single invoice.

Over the course of a year, that adds up to thousands of pounds in unnecessary deductions. Yes, you can claim it back on your tax return, but in the meantime your cash flow takes a serious hit.

0% — Gross Payment Status

Some subcontractors qualify for gross payment status, meaning no deductions are made. You receive the full invoice amount and are responsible for paying your own tax through Self Assessment.

To qualify, you generally need:

• A consistent track record of tax compliance (tax returns filed on time, tax paid on time)
• A minimum turnover threshold (currently £30,000 per year for sole traders)
• To have been in business for a sufficient period

HMRC reviews gross payment status annually, and it can be withdrawn if you fall behind on tax obligations. It's worth pursuing if you qualify, as it significantly improves cash flow.

How CIS Deductions Are Calculated: Step by Step

Let's walk through a real example to make this crystal clear.

Scenario: You're a registered plasterer. You've just finished a job and your invoice breaks down as follows:

• Labour: £1,500
• Materials (plaster, beads, PVA): £250
• Invoice total: £1,750

Step 1: The contractor verifies your CIS status with HMRC (they do this online — it's their responsibility).

Step 2: HMRC confirms you're registered at the 20% rate.

Step 3: The contractor calculates the deduction: 20% of £1,500 (labour only) = £300

Step 4: The contractor pays you: £1,750 - £300 = £1,450

Step 5: The contractor sends the £300 to HMRC and issues you a payment and deduction statement (PDS).

Step 6: The £300 is credited against your tax bill when you file your Self Assessment.

What If You Don't Separate Labour and Materials?

If your invoice doesn't clearly separate labour from materials, the contractor must apply the CIS deduction to the entire amount. In the example above, that would mean: 20% of £1,750 = £350 deducted (instead of £300).

You'd lose an extra £50 for no reason. This is why properly formatted invoices matter — and why tools like YapMate automatically separate labour and materials when you dictate your invoice, ensuring the CIS calculation is always correct.

Payment and Deduction Statements

Every time a contractor makes a CIS deduction from your payment, they must provide you with a payment and deduction statement (PDS). This is your proof that tax has been paid on your behalf.

A PDS must include:

• The contractor's name, address, and employer's tax reference
• Your name and UTR
• The tax month it relates to
• The gross amount, deduction amount, and net payment
• Whether the payment includes materials costs

Contractors must issue PDS documents within 14 days of the end of each tax month (tax months run from the 6th of one month to the 5th of the next).

Why PDS Documents Matter

Keep every single one. When you file your Self Assessment, you'll need to declare your CIS income and claim the deductions back as tax credits. Without PDS documents, you can't prove what was deducted.

If a contractor isn't giving you payment statements, chase them. It's a legal requirement, and you have the right to these documents.

How to Register for CIS

Registration is straightforward. Here's how:

Online (Quickest Method)

1. Go to gov.uk/what-is-the-construction-industry-scheme
2. Sign in with your Government Gateway account (or create one)
3. You'll need your UTR and National Insurance number
4. Follow the registration steps

By Phone

Call the CIS helpline on 0300 200 3210 (Monday to Friday, 8am to 6pm).

What You'll Need

• Your UTR (Unique Taxpayer Reference) — if you don't have one, register as self-employed first
• Your National Insurance number
• Your business details (trading name, address)

Registration is usually processed within a few days. Once registered, contractors can verify you at the 20% rate.

How CIS Affects Your Self Assessment

CIS deductions are advance payments towards your tax bill — they're not a separate tax. When you complete your Self Assessment tax return, here's what happens:

1. You declare your total construction income (the gross amounts, before deductions)
2. You enter the total CIS deductions made during the tax year
3. HMRC calculates your actual tax liability (Income Tax + National Insurance)
4. The CIS deductions are subtracted from what you owe

Three Possible Outcomes

You owe more tax than was deducted: You pay the difference. This can happen if you have other income, or if your expenses are low relative to your turnover.

Your deductions match your liability: Perfect — nothing more to pay, nothing to claim back.

More was deducted than you owe: You get a refund. This is more common than you'd think, especially if you have significant business expenses.

Reclaiming CIS Overpayments

If you've had more CIS tax deducted than you actually owe, you can reclaim the difference through your Self Assessment tax return.

Common reasons for overpayment:

• You have substantial business expenses that reduce your profit
• You were deducted at 30% because you weren't registered (register now to avoid this!)
• You have other tax reliefs or allowances
• Your total income is below the personal allowance (£12,570 for 2025/26)

How to Claim a CIS Refund

1. File your Self Assessment by the deadline (31 January for online returns)
2. Complete the self-employment pages and the CIS deductions section accurately
3. If you're owed a refund, HMRC will process it — usually within 4-8 weeks of filing

Speed Up Your Refund

• File early. Don't wait until January — you can file from April onwards.
• Make sure your figures match. Check your CIS deductions against your payment and deduction statements.
• Keep your bank details up to date with HMRC so refunds can be paid directly.

Common CIS Questions

Can I Be Both a Contractor and a Subcontractor?

Yes. Many tradespeople both hire subcontractors and work as subcontractors themselves. You'd need to register as both with HMRC. When you hire subs, you must verify them, make deductions, and file monthly CIS returns. When you work as a sub, your contractors deduct from your payments.

Do I Pay National Insurance on Top of CIS?

CIS deductions count towards Income Tax and NI. However, you may still need to make additional NI payments through Self Assessment, depending on your total profits. Class 2 NI is currently paid through Self Assessment for profits above £6,725 (2025/26), and Class 4 NI applies at 6% on profits between £12,570 and £50,270.

What If I'm on CIS and Also Do Private Work?

CIS only applies to payments from contractors for construction work. If you also do private domestic work (e.g., a kitchen fit for a homeowner), those jobs don't involve CIS deductions. You still need to declare that income on your tax return, but no one deducts from it at source — you're responsible for the full tax yourself.

What Happens If I Don't Register for CIS?

Your contractors will deduct 30% instead of 20%. You'll get the excess back when you file your tax return, but your cash flow will suffer in the meantime. There's no penalty for not registering, but there's a significant financial incentive to do so.

Can My CIS Deductions Cover My Full Tax Bill?

Sometimes, yes. If your CIS deductions over the year are higher than your total Income Tax and NI liability, you won't owe anything at Self Assessment and you'll receive a refund for the difference.

Practical Tips for Managing CIS Deductions

1. Register for CIS immediately if you haven't already — get the 20% rate.
2. Always separate labour and materials on your invoices to avoid over-deduction.
3. Keep every payment and deduction statement — you need them for your tax return.
4. Track your deductions throughout the year so there are no surprises at Self Assessment time.
5. File your tax return early to get any refund sooner.
6. Use an invoicing tool that understands CIS. YapMate is designed for UK tradespeople and automatically handles CIS calculations when you create invoices by voice — meaning the labour/materials split and deduction amounts are always right.

Summary

CIS deductions are straightforward once you understand the mechanics:

• 20% if you're registered (and you should be)
• 30% if you're not registered (don't let this happen)
• 0% if you have gross payment status (aim for this eventually)
• Deductions apply to labour only, not materials
• Everything is reconciled through Self Assessment
• You can claim back overpayments as a refund

The system isn't perfect, but it's not going anywhere. The best thing you can do is understand it, register properly, invoice correctly, and keep good records.

Want to make CIS invoicing effortless? Try YapMate — dictate your invoice, and we'll handle the CIS maths for you.