CIS Tax for Subcontractors - UK 2026 Guide

If you are a UK construction subcontractor and the company you work for is taking 20% off every invoice, that is the Construction Industry Scheme (CIS) at work. Most tradespeople accept it without really understanding what is happening - and many end up overpaying tax for years because they never claim it back properly.

This guide explains CIS in plain English for UK subcontractors. What it is, how the deduction rates work, how to register, how to claim back overpaid tax, and how to qualify for gross payment status (no deductions at all).

What is CIS?

The Construction Industry Scheme (CIS) is HMRC's system for taxing payments in the construction industry. It exists because HMRC found that too many subcontractors were under-declaring income, so they made the contractor (the company hiring you) responsible for deducting tax at source.

When a CIS contractor pays a subcontractor, they:

1. Check the subcontractor's tax status with HMRC
2. Deduct tax (usually 20%) from the payment
3. Pay the deducted tax to HMRC
4. Send the subcontractor a payment and deduction statement

The subcontractor still files their own tax return at year-end. The CIS deductions count as tax already paid. You either get a refund (if you have overpaid) or owe a little more (if you have underpaid).

Who CIS applies to

CIS applies to construction work done by subcontractors in the UK. The catch is "construction" is defined more broadly than you might think.

Construction work covered by CIS

• Demolition and dismantling
• Building work (new build, extensions, conversions)
• Civil engineering (roads, sewers, bridges)
• Installation of heating, lighting, power, water, ventilation
• Cleaning the inside of buildings after construction
• Painting and decorating buildings
• Repairs and maintenance of buildings
• Installation of fitted furniture, kitchens, bathrooms
• Site preparation, clearance, landscaping linked to construction

Work NOT covered by CIS

• Architecture and surveying (professional services)
• Carpet fitting (after main construction)
• Manufacturing and delivery of materials (without installation)
• Work on existing landscaping (gardening)
• Hire of scaffolding without labour

Who counts as a contractor or subcontractor

• Contractor: any business that pays subcontractors for construction work. If you employ subcontractors, you may be a contractor.
• Subcontractor: any business that does construction work for a contractor. Most sole-trader trade businesses doing work for builders, developers or large contractors are subcontractors under CIS.

You can be both - many UK construction businesses hire subcontractors (acting as contractor) while also working for larger main contractors (acting as subcontractor).

The three CIS deduction rates

When a contractor pays a subcontractor, the deduction depends on the subcontractor's CIS status:

Gross payment status - 0% deduction

The contractor pays the subcontractor the full amount. No tax deducted. The subcontractor handles all tax through their normal Self Assessment or Corporation Tax.

To qualify, the subcontractor must meet HMRC's turnover and compliance tests (covered below).

Standard rate - 20% deduction

For registered subcontractors who do not have gross payment status. This is the rate most subcontractors are on.

The contractor deducts 20% of the labour portion of the invoice (materials are not subject to CIS - more on this below) and pays it to HMRC on the subcontractor's behalf.

Higher rate - 30% deduction

For unregistered subcontractors or those whose details could not be verified with HMRC.

Don't let this happen to you. Register for CIS as soon as you start subcontracting - the difference between 20% and 30% on a £50,000-a-year subcontract is £5,000 in cash flow.

How CIS works in practice - a worked example

Say you are a self-employed plumber subcontracting to a main contractor on a new build. You invoice them for a week's work:

Item	Amount
Labour	£1,200
Materials	£400
Total invoice	£1,600

If you are on standard CIS (20%), the contractor:

• Calculates 20% of the £1,200 labour = £240 deducted
• Pays you the £1,600 total minus the £240 deduction = £1,360
• Pays the £240 to HMRC against your CIS account
• Issues you a Payment and Deduction Statement (PDS) showing what was paid and deducted

You receive £1,360. The £240 sits with HMRC as tax already paid. At year-end you offset it against the tax you owe.

If your actual tax due for the year is less than the total CIS deducted, you get a refund. Most subcontractors are due a refund - especially if they have significant expenses or operate as a limited company.

How to register for CIS as a subcontractor

If you are doing or about to do construction work as a subcontractor, register straight away. Otherwise you will be deducted at 30%.

Sole traders

1. Go to gov.uk/register-as-cis-subcontractor
2. You need your Unique Taxpayer Reference (UTR) and National Insurance number
3. Choose Net pay (20% deduction) or apply for Gross payment status
4. HMRC confirms your registration in 1-2 weeks

If you are not already registered for Self Assessment, register for that first - you cannot register for CIS without a UTR.

Limited companies

Slightly more involved. The company registers via CIS Online or by phone (0300 200 3210). You will need:

• Company Unique Taxpayer Reference
• Company registration number
• Company bank account details
• A director's National Insurance number

How to qualify for gross payment status

Gross payment status (0% deduction) is worth pursuing if you can qualify. It means you receive 100% of every invoice, manage your own tax through normal returns, and your cash flow improves significantly.

To qualify, HMRC runs three tests:

Business test

You must be carrying on a real construction business in the UK with a business bank account.

Turnover test

In the previous 12 months, your construction turnover (excluding VAT and the cost of materials) must be at least:

• £30,000 if you are a sole trader
• £30,000 per partner if you are a partnership
• £30,000 per director, or £200,000 total if you are a limited company

This is labour only - the cost of materials does not count toward the turnover test.

Compliance test

You must have been compliant with all tax obligations for the last 12 months:

• Self Assessment or Corporation Tax returns filed on time
• Payments made on time
• VAT returns up to date (if VAT registered)
• PAYE up to date (if you have employees)
• CIS returns filed on time (if you have been a contractor)

HMRC reviews gross payment status annually. If you become non-compliant, they can remove it.

How to apply

Once you meet the criteria, apply through your CIS online account. HMRC reviews and decides usually within 1-2 months.

What is and isn't subject to CIS deduction

The 20% (or 30%) deduction is only on labour, not on the full invoice. Materials are deducted before the calculation.

Subject to deduction

• Your labour and skill
• Sub-subcontractors' labour you have paid for (with appropriate paperwork)

Not subject to deduction

• Cost of materials you bought and are charging through
• Plant and equipment hire
• Travel costs (if separately stated and reasonable)
• Fuel for plant and equipment

If you do not split labour and materials clearly on your invoice, the contractor may apply CIS to the whole amount. Always itemise.

How to claim back overpaid CIS tax

Most subcontractors on standard 20% CIS end up overpaying tax through the year. Here is how the refund works:

Sole traders

When you submit your Self Assessment tax return at year-end:

1. Add up all your CIS deductions for the tax year (from your PDSs)
2. Enter this on the "CIS deductions" box of your Self Assessment
3. HMRC calculates your actual tax due for the year
4. The CIS deductions count as tax already paid
5. If CIS deducted is more than tax due, HMRC refunds the difference

Refunds are typically paid 2-6 weeks after your return is submitted, sometimes faster if you ask for it specifically.

Limited companies

Limited company subcontractors have a more involved process:

1. The CIS deductions sit as a credit against the company's PAYE bill
2. If the company has employees, the credit offsets PAYE due
3. If there is no PAYE bill (small company with no payroll), apply for an offset against Corporation Tax or a direct refund

HMRC offers an "in-year offset" for limited companies to use CIS credits against PAYE before year-end. This is usually faster than waiting for year-end.

Keep every PDS

Contractors are legally required to send you a Payment and Deduction Statement (PDS) each month they pay you. Keep all of them - HMRC may ask for them when processing your refund.

Common CIS mistakes that cost money

Not registering early enough

If you start subcontracting without being CIS-registered, you get deducted at 30% instead of 20%. On £40k of subcontract work that is £4,000 extra deducted - which you can claim back, but only after months of waiting.

Not itemising labour and materials

If your invoice just says "Bathroom installation - £3,000" the contractor may apply CIS to the whole amount. Split it: "Labour £1,800, Materials £1,200". Now CIS only applies to the £1,800.

Losing PDSs

Contractors are meant to send a PDS each month but plenty miss them. If you do not chase, you have no record of CIS deducted - and HMRC will not process a refund without evidence. Track every payment received against every PDS expected.

Not claiming all expenses

A subcontractor on 20% CIS often has months where they have paid more tax than they owe even before they claim a single business expense. Claim every legitimate expense and you can hit a significant refund.

See our full guide on trade business expenses you can claim.

Missing gross payment status applications

If you are doing more than £30,000 of labour turnover per year and have a clean compliance record, gross payment status saves you months of cash flow tied up at HMRC. Many qualifying subcontractors never apply.

CIS for contractors - if you employ subcontractors

If your business pays subcontractors for construction work, you may be a contractor under CIS. You have legal obligations:

1. Register as a contractor with HMRC before paying any subcontractor
2. Verify each subcontractor's CIS status with HMRC before paying them (online or by phone)
3. Deduct the correct amount (0%, 20%, or 30%) based on their status
4. Send a Payment and Deduction Statement (PDS) to each subcontractor within 14 days of the month-end
5. File monthly CIS returns to HMRC (even if no subcontractors paid that month - "nil" returns required)
6. Pay the deductions to HMRC by the 22nd of the following month

Penalties for missed CIS returns are significant - £100 immediately, growing rapidly if delayed further.

Frequently asked questions

Can I work outside CIS?

If you do construction work as a subcontractor for a CIS-registered contractor, the contractor is legally required to apply CIS. You cannot opt out. The only way to avoid CIS deductions is to qualify for gross payment status.

Does CIS apply to domestic customers?

Almost never. A normal homeowner hiring a tradesperson for work on their own home is not a CIS contractor. CIS applies when you are a subcontractor for a business that pays subcontractors as part of its trade - typically a main contractor, developer, or large construction firm.

How quickly can I get my CIS refund?

Sole traders typically get refunds 2-6 weeks after filing Self Assessment, but it can be faster if you call HMRC and ask. Limited companies can use in-year offsets against PAYE which is faster than year-end. Average wait for a refund is 4-8 weeks but HMRC have been quicker recently with online submissions.

Does software handle CIS?

Some trade business apps have basic CIS features (recording deductions, generating CIS-formatted invoices). VioTrade is focused on the operational side of running a trade business - quoting, invoicing, jobs, expenses - rather than the deeper CIS administration that contractors face. For CIS contractor returns, most use dedicated accounting software (Xero, QuickBooks) that integrates with their day-to-day app.

What if I am both a contractor and a subcontractor?

Common - and totally fine. You register for both roles. You deduct from your subcontractors (your contractor obligations) while having deductions taken from you by main contractors (your subcontractor situation). Both flow through the same CIS scheme at HMRC.

Should I be VAT registered as a CIS subcontractor?

Same rules as any business: mandatory registration over £90,000 turnover in any 12 months. Voluntary registration below that. Many CIS subcontractors register voluntarily because they can reclaim VAT on materials and tools. Domestic Reverse Charge complicates VAT in the construction sector - speak to an accountant.

CIS in two sentences

If you are a UK construction subcontractor, register for CIS the day you start so you get the 20% rate not the 30% rate. Keep every Payment and Deduction Statement, claim every business expense, and file your Self Assessment on time - most subcontractors get a meaningful refund.

Try VioTrade free for 14 days - manage your subcontract invoices, materials, expenses and Xero sync in one app built for UK trades. No credit card required.