The Construction Industry Scheme, usually called CIS, is how HMRC collects income tax and National Insurance from people who work as subcontractors in the UK construction sector. 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 every week about CIS. This guide explains how the scheme works, what deductions mean for your take-home pay, and how to claim money back if too much tax has been taken.
What Is the Construction Industry Scheme?
CIS is a set of HMRC rules that require contractors to deduct tax from payments made to subcontractors. The deduction is sent straight to HMRC and counts as an advance payment of the subcontractor’s income tax and National Insurance.
The scheme 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 or carpet fitting, but most trades on a construction site fall within CIS.
How CIS Deductions Work
When a contractor pays a subcontractor, they must deduct tax at one of three rates:
- 20% if the subcontractor is registered with HMRC under CIS.
- 30% if the subcontractor is not registered under CIS.
- 0% if the subcontractor has gross payment status.
The 20% or 30% deduction is taken from the labour portion of the invoice, not from materials. The contractor then reports and pays the deduction to HMRC.
Registering for CIS
Before you can work for most contractors, you need to register as a subcontractor with HMRC under CIS. Registration is free and usually done online. Once registered, contractors deduct 20% instead of 30%, which immediately improves your cash flow.
If you also employ people or hire subcontractors yourself, you may need to register as a contractor as well. A contractor under CIS is any business that pays subcontractors for construction work, not just large building firms.
Claiming Back CIS Deductions
Because CIS deductions are taken before you receive your money, many subcontractors overpay tax during the year. The overpayment is claimed back through your annual self assessment tax return.
The amount you get back depends on your total income, allowable expenses and other income or tax allowances. A CIS accountant can make sure every allowable expense is included, from tools and protective clothing to vehicle costs and home office use.
Gross Payment Status
Established subcontractors with a good tax compliance record may qualify for gross payment status. This means contractors pay you in full with no CIS deduction. You then pay your tax and National Insurance through self assessment.
HMRC looks at several things before granting gross payment status, including:
- 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.
Common CIS Mistakes
- Not registering: If you are not CIS-registered, contractors must deduct 30% instead of 20%.
- Losing statements: You need your CIS deduction statements to prove what tax has been paid on your behalf.
- Missing expenses: Many subcontractors underclaim allowable costs, which reduces their rebate.
- Late tax returns: Missing the 31 January deadline leads to penalties and delays any rebate.
- Confusing contractor and subcontractor roles: If you hire other trades, you may have responsibilities as a contractor too.
HMRC publishes the full rules in the CIS 340 guide for contractors and subcontractors, and you can check current rates and thresholds 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.
The standard deduction is 20% for registered subcontractors and 30% for unregistered subcontractors. Subcontractors with gross payment status have 0% deducted.
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.
Final Thoughts
CIS is not complicated once you understand the basics, but the cash flow impact can be significant. Registering correctly, keeping good records and filing an accurate self assessment return are the three things that make the biggest difference to your tax position.
If you are a subcontractor in Lancashire or the North West and want help with CIS registration, deductions or rebate claims, contact R&R Chartered Certified Accountants for a free consultation.
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.
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