CIS Explained: What Every Self-Employed Subcontractor Needs to Know

If you work as a self-employed subcontractor in the UK building trade, the Construction Industry Scheme (CIS) affects how you get paid on every job. Understanding it properly means you pay the right amount of tax — and do not leave money on the table at the end of the year.

What is the Construction Industry Scheme?

CIS is HMRC's framework for collecting tax from subcontractors working in the construction industry. Instead of paying you your full invoice amount, your contractor is legally required to deduct a percentage and send it directly to HMRC on your behalf.

It covers most construction work: building, alterations, repairs, decorating, civil engineering, and demolition. It does not cover architecture, surveying, or the supply of materials alone.

How much gets deducted from your payments?

The deduction rate depends on your registration status:

The deduction only applies to your labour, not materials. If your invoice is £2,000 for labour and £500 for materials, the contractor deducts from £2,000, not £2,500.

How do you register for CIS?

Register directly with HMRC before you start working for a contractor. You will need your:

• National Insurance number
• Unique Taxpayer Reference (UTR)
• Legal business name

You can register online through your HMRC Government Gateway account or by calling the CIS helpline. Once registered, contractors verify you at the 20% rate rather than 30%.

Registration takes minutes. Subcontractors who skip it immediately cost themselves 10p in every pound.

What is gross payment status?

Gross payment status means the contractor pays you in full with no deductions. You are responsible for paying your own tax through Self Assessment at the end of the year.

To qualify, you must:

• Have been registered for CIS for at least 12 months
• Have a good tax compliance record (no serious defaults)
• Meet an annual turnover threshold (£30,000 for sole traders, £100,000 for partnerships, £100,000 for companies)

HMRC reviews gross payment status annually. Missing a tax return or paying late can result in it being withdrawn — which means going back to 20% deductions immediately.

How do CIS deductions work at tax time?

The deductions are not a final tax payment — they are a prepayment toward your Self Assessment bill. At the end of each tax year, you declare your income and expenses on your Self Assessment return. HMRC then calculates your actual tax liability and offsets the CIS deductions already paid.

If your deductions exceed your liability, HMRC refunds the difference. Many subcontractors get money back, particularly those with significant allowable expenses.

You must claim the refund through Self Assessment — it does not happen automatically.

Can you offset your own expenses against CIS income?

Yes. Allowable expenses reduce your taxable profit and therefore your final tax bill. Common deductions for subcontractors include:

• Tools and equipment (and replacement costs)
• Van running costs (fuel, insurance, servicing, road tax)
• PPE, workwear, and safety equipment
• Training directly related to your trade
• A proportion of phone and broadband costs

Good records throughout the year mean you claim everything you are entitled to. See our CIS subcontractor guide for a full list of allowable expenses.

Frequently asked questions

Do contractors need to verify me each time? A contractor only needs to verify you once. After that, they can use your verified status for future payments. If you have not worked for a particular contractor before, they must verify you with HMRC before making the first payment.

What if a contractor does not operate CIS correctly? Contractors who fail to deduct correctly face penalties from HMRC. As the subcontractor, you are not penalised for a contractor's error — but you should keep your own records of what was paid and what was deducted so your Self Assessment is accurate.

Does CIS apply if I work through a limited company? Yes. CIS applies to limited companies that perform construction work as subcontractors. The deduction is made against the company's tax account rather than individual income.

Is CIS the same as VAT? No. CIS deductions are income tax prepayments. VAT is a separate tax on sales. If you are VAT-registered, you still charge VAT on top of your invoice, and CIS is deducted from the net (ex-VAT) labour element.

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For more detail on how CIS interacts with Self Assessment, see our full CIS tax guide for UK tradespeople.