construction industry scheme explained
The Beginner's Guide to the Construction Industry Scheme (CIS)
CIS is simple once someone explains it straight: contractors must deduct tax from your pay before you see it - 20% if you're registered, 30% if you're not - and send it to HMRC on your behalf. It's not extra tax, it's an advance payment towards your bill. Here's how it works and how to stop it strangling your cash flow.
How CIS actually works
When a contractor pays a subcontractor for construction work, they verify you with HMRC, deduct the right percentage from the labour element of your invoice, and pass it to HMRC. You get the rest, plus a deduction statement showing what was taken. At year end, everything deducted counts towards the tax you owe - and if too much was taken, you get it back.
20% or 30%: registration is the difference
The deduction rate depends entirely on whether you registered:
- 30% - unregistered subcontractor. HMRC assumes the worst.
- 20% - registered subcontractor. The standard rate.
- 0% - gross payment status. Paid in full, tax settled later (more below).
Registering is free and done through the CIS online service. If you're new to subcontracting and being stung at 30%, this is the single fastest pay rise available to you.
Materials: don't let them be taxed
Deductions only apply to labour. Materials are excluded - if you invoice them properly. That means itemising materials separately, at their genuine cost to you, not bundling everything into one line. A £2,000 invoice split as £1,200 labour and £800 materials loses £240 to a 20% deduction. The same invoice as one lump line risks losing £400.
Getting your deductions back
Sole traders
Your deductions go on your Self Assessment return and are offset against the tax and National Insurance you owe. Most subbies who've had 20% taken all year end up with a refund, because the flat deduction ignores your expenses and personal allowance.
Limited companies
Companies reclaim differently - through an EPS (Employer Payment Summary) submitted via payroll, offsetting deductions against PAYE liabilities. Get this wrong and money sits with HMRC for months, so most limited company subbies let their accountant handle it.
From the tools: My brother, a spark in Leeds, subbed alongside a groundworker who spent his entire first year on 30% deductions because nobody told him registration existed. On roughly £38,000 of labour that's about £3,800 more withheld than a registered subbie would have lost - money he only saw again after his first Self Assessment, over a year later. My brother registered in week one because a site manager marched him through it during a tea break, and his first-year refund still came to around £1,900 once expenses went through. Same trade, same sites, wildly different cash flow. Ten minutes of admin is the difference.
Gross payment status: the cash-flow upgrade
Gross payment status means contractors pay you with no deduction at all. You settle your own tax through Self Assessment or corporation tax, keeping full control of your cash in the meantime. To qualify you must pass three tests:
- ✓ Turnover of at least £30,000 (sole trader) from labour, net of materials
- ✓ A clean compliance record - returns and tax paid on time
- ✓ A business bank account in your name
Apply through the CIS online service. HMRC reviews your compliance regularly afterwards, so keep filing on time or you can lose it.
Quick answers
Why am I being deducted 30%?
You're not registered under CIS. Register through the CIS online service and the rate drops to 20% - the quickest pay rise in construction.
Are materials deducted too?
No - CIS applies to labour only, provided you itemise materials separately at genuine cost on your invoice. Lump it together and you risk deductions on the lot.
How do I get deductions back?
Sole traders offset or reclaim through Self Assessment; limited companies use an EPS through payroll. Keep every deduction statement as proof.
How do I get paid gross?
Apply for gross payment status via the CIS online service. You need at least £30,000 labour turnover as a sole trader (net of materials), a clean compliance record and a business bank account.
This is general information for UK tradespeople, not tax or legal advice. Rules change - check GOV.UK or a qualified accountant for your situation.
Quotato splits labour and materials and applies CIS deductions on every invoice automatically.
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