The Construction Industry Scheme (CIS) is how HMRC collects tax from construction subcontractors before they are paid. Contractors take 20% from the labour part of your invoice (30% if you are not registered) and send it to HMRC as an advance on your tax. If too much is taken, you claim it back through your Self Assessment return.
If you are a builder, plumber, electrician, plasterer, groundworker or any other trade working for a contractor, CIS almost certainly affects how you are paid.
At R&R Chartered Certified Accountants we talk to subcontractors across Lancashire and the North West about CIS every week. This guide covers how the scheme works, what the deductions mean for your take-home pay, and how to get overpaid tax back.
It applies whether you are a sole trader or a limited company. If you would rather hand it over, see our CIS accountant service and our work as accountants for construction and engineering businesses.
What Is the Construction Industry Scheme?
CIS is a set of HMRC rules that require contractors to deduct tax from payments to subcontractors. The deduction goes straight to HMRC and counts as an advance payment of the subcontractor’s income tax and National Insurance.
What work does the Construction Industry Scheme cover?
It covers most construction work done in the UK, including:
- Building, altering, repairing or demolishing structures.
- Work on roads, railways, airfields and other infrastructure.
- Installing heating, lighting, power, water and ventilation systems.
- Decorating, plastering, tiling and similar finishing trades.
- Preparatory work such as site clearance and scaffolding.
Some work is excluded, such as architecture, surveying and carpet fitting. Most trades on a construction site fall within CIS.
How much tax is deducted under CIS?
When a contractor pays a subcontractor, they deduct tax at one of three rates:
- 20% if the subcontractor is registered with HMRC under CIS.
- 30% if the subcontractor is not registered.
- 0% if the subcontractor has gross payment status.
The deduction is taken from the labour part of the invoice, not from materials. The contractor then reports it and pays it to HMRC.
Do you need to register for CIS?
Before you work for most contractors, you should register with HMRC as a CIS subcontractor. Registration is free and usually done online.
Once you are registered, contractors deduct 20% instead of 30%. That improves your cash flow straight away.
If you also pay other subcontractors for construction work, you must register as a contractor too. Employing staff through PAYE does not on its own make you a CIS contractor. A contractor under CIS is any business that pays subcontractors for construction work, not just large building firms.
How do you claim back CIS deductions?
CIS is taken before you are paid, so many subcontractors overpay tax during the year. You claim the overpayment back through your annual self assessment tax return.
How much comes back depends on your total income, allowable expenses and any other income or allowances. A CIS accountant makes sure every allowable expense is included, from tools and protective clothing to vehicle costs and home office use.
What is gross payment status?
Established subcontractors with a good tax record may qualify for gross payment status. Contractors then pay you in full with no CIS deduction, and you pay your tax and National Insurance through Self Assessment.
HMRC looks at several things before granting it:
- Your turnover.
- Whether your tax returns and payments have been on time.
- Whether your business is run through a bank account.
- The overall compliance history of the business.
What CIS mistakes cost subcontractors money?
- Not registering: contractors must then deduct 30% instead of 20%.
- Losing statements: you need your CIS deduction statements to prove what tax was paid for you.
- Missing expenses: many subcontractors underclaim allowable costs, which shrinks their rebate.
- Late tax returns: missing the 31 January deadline means penalties and a delayed rebate.
- Mixing up roles: if you pay other trades for construction work, you have contractor duties too.
HMRC publishes the full rules in the CIS 340 guide for contractors and subcontractors. Current rates are on GOV.UK.
Frequently Asked Questions
CIS applies to most subcontractors working in UK construction, including builders, plumbers, electricians, plasterers, roofers, groundworkers and many other trades. It also applies to businesses that pay these subcontractors, known as contractors.
You claim back overpaid CIS tax by filing a self assessment tax return. HMRC will calculate the difference between what was deducted and what you actually owe, then refund the surplus.
Yes. Many construction businesses are both. If you hire subcontractors, you have contractor duties including verifying subcontractors with HMRC and making CIS deductions.
Common claims include tools, safety equipment, vehicle mileage, fuel for business travel, home office costs, phone and broadband use, professional subscriptions and accountancy fees.
You apply through HMRC online or by post. HMRC checks your turnover, tax compliance record and business structure. An accountant can help prepare the application and improve your chances.
The bottom line
The Construction Industry Scheme is simple once you know the basics, but it has a big effect on your cash flow. Three things make the most difference to your tax position:
- Registering correctly.
- Keeping good records.
- Filing an accurate Self Assessment return.
If you are a subcontractor in Lancashire or the North West and want help with CIS registration, deductions or a rebate claim, contact R&R Chartered Certified Accountants for a free consultation.
Tax figures checked by Rehan Razzaq FCCA on 8 October 2026 for the 2026/27 tax year.
This article is general guidance for UK businesses and individuals and does not constitute personal financial or tax advice. Rules, thresholds and individual circumstances vary — always confirm your specific position with a qualified accountant before acting.
Rehan Razzaq, FCCA
Founder, R&R Chartered Certified Accountants
ACCA Chartered Certified and Xero Certified Advisor, helping UK small businesses and subcontractors with accounts, tax and financial planning since 2021.
We work with clients right across Lancashire and the North West. If you are looking for accountants in Blackburn, or a local accountant in Nelson or accountant in Accrington, our team is a short drive away.
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