If you work on building sites for a contractor in the UK, part of every payment can be withheld before it reaches your bank account. That is the CIS deduction: under HMRC’s Construction Industry Scheme, contractors deduct 20% from registered subcontractors and 30% from unregistered ones, and send it to HMRC as advance tax. This guide explains who it applies to, exactly what is deducted from, how to qualify for zero deductions, and what it means for your cash flow. You can check an actual payment with our CIS deduction calculator, which takes materials, plant hire and VAT off before applying the rate.
What is the CIS deduction?
The CIS deduction is a tax withholding under HMRC’s Construction Industry Scheme. When a contractor pays a subcontractor for construction work, the contractor deducts 20% of the labour element if the subcontractor is registered for CIS (and verified), 30% if not, and sends it to HMRC as advance payment towards the subcontractor’s Income Tax and National Insurance.
CIS exists to stop tax going uncollected in an industry where cash work and short subcontract chains were once common. It applies across the whole of the UK, England, Scotland, Wales and Northern Ireland alike. The deduction is not an extra tax: it is an advance payment that is set against the tax and National Insurance you owe when you file your return, as HMRC explains in its guidance for CIS subcontractors.
That last point matters. Many new subcontractors see 20% vanish from a payment and assume it is gone. It is not. It sits with HMRC in your name until your tax bill is worked out. The real question is whether the deduction is too much, too little, or just right for your actual earnings, which is why understanding the rate you are on is the first step.
The scheme has two sides. Contractors are businesses that pay subcontractors for construction work. That includes the obvious, builders and main contractors, but also any business or organisation that spends more than £3 million on construction work in a year, even if construction is not its main trade. Housing associations, local authorities and large property developers can all be pulled into CIS this way.
Subcontractors are the self-employed people and businesses doing the construction work: sole traders, partnerships and limited companies. It covers bricklayers, carpenters, electricians, plumbers, plasterers, scaffolders, groundworkers, labour-only gangs and the firms that supply them, provided the work is construction operations. That means building, alteration, repair, extension, demolition, dismantling and site preparation work.
Pure design professionals doing only architectural, surveying or consultancy work are outside the scheme, as is supplying materials with no labour attached. Employees are outside it too: if you are genuinely employed and on payroll, CIS never touches you.
Tip: Registration is optional, but there is no upside to skipping it. An unregistered subcontractor pays 30% on every payment, and the contractor has no choice in the matter. Registering is free and usually done online through your Government Gateway account using your Unique Taxpayer Reference (UTR).
How much CIS is deducted from your pay?
Your contractor deducts 20% of the labour element of your payment if you are registered for CIS and they can verify you, 30% if you are unregistered or cannot be verified, and nothing at all if you hold gross payment status. Which rate applies depends entirely on your registration status, as the table below shows.
| Your status | CIS deduction rate | What happens |
|---|---|---|
| Registered and verified by the contractor | 20% | Contractor deducts 20% of the labour element and pays it to HMRC |
| Unregistered, or cannot be verified | 30% | Contractor deducts 30% of the labour element and pays it to HMRC |
| Gross payment status | 0% | You are paid in full; you pay your own tax when it falls due |
The jump from 20% to 30% is the single most expensive mistake in the scheme. On £40,000 of labour a year, an unregistered subcontractor has £12,000 withheld instead of £8,000. That £4,000 gap can be reclaimed if you have overpaid, but it is locked up with HMRC until your return is processed, which is a cash-flow problem you choose when you do not register.
Watch out: Even registered subcontractors can be hit with 30% if the contractor cannot verify them. If the name or UTR you give does not exactly match the details HMRC holds, verification fails and the higher rate applies automatically. Check your details match your registration before you start a new contract.
What is CIS deducted from?
The deduction applies to the labour element of your invoice, never the invoice total. Before applying the 20% or 30% rate, the contractor must strip out VAT, materials you paid for directly, plant hire, manufacturing costs, consumable stores and non-travel fuel, and only then apply the percentage to what is left.
Under HMRC’s rules, the contractor starts with your gross invoice and removes:
- VAT, which is never subject to CIS deductions
- Materials you paid for directly, such as timber, fixings or bricks you bought yourself
- Plant hired for the job, for example a hired digger or tower scaffold
- Manufacturing or prefabricating materials where that applies
- Consumable stores, equipment that is now unusable
- Fuel used on the job, but not fuel for travelling to it
The CIS percentage is then applied to whatever is left. In practice, that remainder is your labour charge.
Tip: Keep receipts for every material you buy. Your contractor can ask for evidence that you paid for materials directly, and if you have none, they are allowed to estimate the cost. Estimates made without receipts rarely favour the subcontractor, and the deduction then lands on money that should never have been touched. Itemising labour and materials as separate lines on every invoice, which LancerBill’s free invoice generator makes straightforward, removes the ambiguity entirely. Our step-by-step guide to writing an invoice shows exactly how to lay the lines out.
How do you get paid under CIS?
You register for CIS with HMRC using your UTR, give the contractor your exact registration details, and they verify you before your first payment. Each tax month you are paid with the deduction taken, and the contractor must send you a payment and deduction statement within 14 days of the month end. The full step-by-step process is:
- Register for CIS with HMRC as a subcontractor. You can do this online through your Government Gateway account, or by post if you cannot register online. You will need your UTR and National Insurance number (as a sole trader) or company details.
- Give the contractor your exact registration details: your UTR and your legal business or trading name. They must match your HMRC records character for character.
- The contractor verifies you with HMRC before your first payment. HMRC tells them which rate to apply, 20% or 30%.
- You are paid with the deduction taken, and VAT added on top if you are VAT registered. If you are not sure whether you need to be VAT registered, read our guide to VAT for freelancers, and use LancerBill’s VAT calculator to get the numbers right on each invoice.
- You receive a payment and deduction statement from the contractor each tax month. They must give it to you within 14 days of the end of the tax month (tax months run from the 6th of one month to the 5th of the next, so a statement for 6 May to 5 June must reach you by 19 June).
- Keep every statement. HMRC may ask for them as evidence of your deductions when you file your tax return, and if you lose one, ask the contractor for a replacement.
What is gross payment status and how do you qualify?
Gross payment status means contractors pay you in full with no CIS deductions taken. You must pass three HMRC tests: a business test (UK construction business run through a bank account), a turnover test (£30,000 net construction turnover for a sole trader, excluding VAT and materials), and a compliance test (tax affairs up to date over the past 12 months).
The tests are worth understanding in detail, because gross payment status is the single biggest cash-flow upgrade a busy subcontractor can get:
- The business test. You must genuinely carry on construction work (or supply labour for it) in the UK, and run the business through a bank account.
- The turnover test. Your net construction turnover over the last 12 months, that is, your construction income minus VAT and minus materials, must be at least £30,000 for a sole trader. Partnerships need £30,000 per partner or £100,000 overall; companies need £30,000 per director or £100,000 overall.
- The compliance test. Your tax affairs must be up to date for the previous 12 months: returns filed and payments made on time. This is where most applications fail. Late Self Assessment, VAT or CIS returns, even small ones, can sink an application.
You apply through HMRC’s online service. Once approved, no contractor deducts anything from your payments, which means you keep the full amount and settle your own tax bill when it falls due.
Watch out: Gross payment status is a cash-flow responsibility, not free money. If 20% used to be withheld for you, you now have to set that aside yourself for your tax bill. Subcontractors who spend the gross payments and cannot pay their Self Assessment bill end up in a worse position than they started. A common rule of thumb is to move 25-30% of every payment into a separate tax account the day it arrives. Run your prices through LancerBill’s profit margin calculator so the jobs you take still leave room for the tax you now hold yourself.
CIS deduction worked example
Here is how the numbers play out on a real invoice. Assumptions: you are a registered sole trader subcontractor, verified by the contractor, VAT registered, and you have receipts for the materials you bought. Tax year 2026/27.
The job: you invoice £3,000 for labour and £600 for materials you paid for yourself. VAT at 20% applies to the £3,600 subtotal.
- Invoice subtotal: £3,000 labour + £600 materials = £3,600
- VAT at 20%: 0.20 × £3,600 = £720
- Invoice total: £3,600 + £720 = £4,320
- CIS deduction base: £4,320 − £720 VAT − £600 materials = £3,000 (the labour element)
- CIS deduction at 20%: 0.20 × £3,000 = £600
- You are paid: £4,320 − £600 = £3,720
The £600 goes to HMRC in your name as an advance payment towards your Income Tax and National Insurance. When you file your Self Assessment return, it is set against your bill, and if your total deductions for the year exceed what you owe, HMRC refunds the difference.
Now compare: if you were unregistered, the deduction would be 30% × £3,000 = £900, and you would receive £3,420. That is £300 less in your pocket every month for identical work, or £3,600 over a year. Registration is free. The maths is not close.
Rates last reviewed: October 2026.
Mistakes that cost construction subcontractors money
Most CIS problems are not complicated. They are small oversights repeated every month:
Not registering. The 30% rate is automatic for the unregistered. Register before you start work, not after the first short payment arrives.
Lumping labour and materials together. If your invoice shows one total with no split, the contractor has to decide what counts as labour. Guess what their guess favours. Itemise every invoice: labour lines, materials lines, VAT on top.
Losing deduction statements. Those monthly statements are your proof of advance tax payments. Without them, claiming your deductions back at tax time becomes a fight. Keep them filed by tax year.
Assuming the deduction is your final tax. CIS is an advance payment, not the bill itself. If you are a sole trader earning modestly, 20% withheld can easily exceed what you actually owe, which means money back, but only if you file your Self Assessment return and claim it. Missing the Self Assessment deadline brings its own penalties on top, as our guide to missed Self Assessment deadlines explains.
Forgetting the contractor side. Many subcontractors eventually hire others, which makes them contractors too. Contractors must file a CIS monthly return by the 19th of each month covering the previous tax month, and pay the deductions to HMRC like PAYE. The penalty ladder is steep: £100 for one day late, £200 at two months late, and £300 or 5% of the deductions (whichever is higher) at six and twelve months late, with up to £3,000 beyond that. HMRC’s contractor guidance sets out the deadlines and penalties in full.
Key takeaways
- The CIS deduction is 20% for registered, verified subcontractors and 30% for unregistered ones, taken from the labour element of each payment.
- VAT, materials you paid for directly, and plant hire are excluded from the deduction, so itemised invoices protect your money.
- The deduction is an advance payment towards your tax and National Insurance, not extra tax; overpayments are reclaimed through your tax return.
- Gross payment status means zero deductions, but you must pass HMRC’s business, turnover (£30,000 for sole traders) and compliance tests.
- Keep every monthly payment and deduction statement; HMRC can ask for them as evidence.
- Contractors who also hire must file monthly CIS returns by the 19th, with penalties from £100 for a single day late.
When you invoice under CIS, use our construction invoice template, which shows the CIS deduction, retention and reverse charge VAT lines in the right place.
Frequently asked questions
Do I have to register for CIS as a subcontractor?
No, registration is optional, but there is no good reason to skip it. Registration is free, and it drops your deduction rate from 30% to 20% on every payment. Unregistered subcontractors simply have more of their money held by HMRC until their tax return is processed.
Is CIS deducted from VAT?
No. VAT is explicitly excluded from CIS deductions. If you are VAT registered, you charge VAT on top of your labour and materials as normal, and the contractor deducts CIS only from the labour element before VAT. VAT itself is untouched.
How do I claim back CIS deductions?
If you are a sole trader or in a partnership, CIS deductions are entered on your Self Assessment tax return and set against your Income Tax and National Insurance bill. If the deductions exceed what you owe, HMRC refunds the difference. Limited companies offset CIS deductions against the company’s PAYE liabilities through the payroll instead.
Are materials I buy for the job subject to CIS deductions?
No, as long as you paid for them directly. Materials, plant hire, consumables and non-travel fuel are removed from the invoice total before the CIS percentage is applied. Keep receipts, because without evidence your contractor is allowed to estimate the materials cost, and estimates rarely favour you.
What should I do if my contractor deducts 30% even though I am registered?
Ask them to re-verify you with HMRC. The 30% rate applies automatically when verification fails, which usually means the name or UTR you gave does not exactly match HMRC’s records. Check your details against your registration letter or Government Gateway account, give the contractor the exact match, and they can verify you again.
Does CIS apply across the whole UK?
Yes. The Construction Industry Scheme covers England, Scotland, Wales and Northern Ireland. The rates, registration process and contractor obligations are the same wherever in the UK the construction work takes place.
This guide is for general information only and is not financial, tax or legal advice.