CIS for Self-Employed Tradespeople: How It Works

If you're self-employed in construction and being paid by a contractor, you're almost certainly working under the Construction Industry Scheme whether you know it or not. CIS affects how much you get paid, what goes on your invoices, and how you reclaim tax at year end.

Here's how CIS works specifically for self-employed tradespeople — and what to do to avoid the most expensive mistakes.

What CIS Does to Your Payments

Under CIS, when a contractor pays a subcontractor, they deduct a percentage from the labour portion of the payment and send it to HMRC on your behalf. You don't receive that deduction — it goes directly to HMRC as an advance against your tax and National Insurance bill.

The deduction rate depends on your CIS status:

• Registered subcontractor: 20% on labour — for people registered for CIS with HMRC
• Unregistered subcontractor: 30% on labour — if HMRC can't confirm your registration
• Gross payment status: 0% — for established businesses that pass HMRC's turnover and compliance tests

The deduction is not a final tax. It's a credit. At the end of the tax year, you declare your income on Self Assessment, HMRC calculates what you actually owe, and offsets the CIS deductions you've had taken throughout the year. If more was deducted than you owe, you get a refund.

Why Registration Matters

The gap between 20% and 30% is 10 percentage points. On a sole trader doing £40,000 of labour income per year, that's £4,000 sitting with HMRC for up to 18 months instead of in your account. Registration is free, takes a few minutes online, and immediately brings you to the 20% rate.

If you're not yet registered, the contractor who pays you must apply the 30% rate — even if you've been working with them for years. They have no choice: HMRC tells them the rate based on your registration status when they verify you.

How to Register for CIS as a Self-Employed Person

You need two things before you can register: a UTR (Unique Taxpayer Reference) and a National Insurance number.

If you're already registered for Self Assessment, you have a UTR. If you're new to self-employment:

1. Register for Self Assessment — HMRC will send you a UTR within 10 working days
2. Once you have your UTR, register for CIS online

That's it. Both registrations are free. You can do them yourself via GOV.UK without an accountant.

What Your UTR Is For

Your UTR (Unique Taxpayer Reference) is the 10-digit number on your Self Assessment correspondence. Under CIS, every contractor who pays you for the first time must verify you with HMRC — and they need your UTR to do it.

When they provide your UTR to HMRC, HMRC checks whether you're registered and returns your deduction rate. If you don't give them your UTR, HMRC can't confirm your status and the contractor must apply the 30% unregistered rate automatically.

Put your UTR on every invoice you send to CIS-registered contractors. It's that simple — and it costs you money if you don't.

What Goes on Your Invoice Under CIS

A CIS invoice for a self-employed person needs:

1. Your name (the name you're registered under with HMRC)
2. Your UTR — essential for the contractor to apply the right deduction rate
3. Labour and materials separated — CIS deductions apply to labour only. If you mix them, the contractor may deduct from the full amount.
4. A CIS deduction line — showing the deduction amount (20% or 30% on the labour total)
5. The net payment total after the deduction

The contractor pays you the net total. The deduction amount goes to HMRC.

If you're VAT-registered and invoicing another VAT-registered contractor under CIS, you also need to deal with the domestic reverse charge — meaning you don't charge VAT, the contractor accounts for it.

See our self employed invoice template guide for the full invoicing breakdown.

What the Contractor Gives You

Every month, after the CIS tax month ends (the 5th of the month), the contractor has 14 days to give you a payment and deduction statement. This shows:

• The gross payment amount
• Any materials excluded
• The CIS deduction taken

Keep every statement. You need them to complete your Self Assessment accurately — they're your evidence for the CIS credit you're claiming. If the contractor doesn't send them, ask — they're legally required to issue them.

Reclaiming CIS Deductions on Self Assessment

At the end of the tax year, when you complete your Self Assessment tax return, you enter:

• Your total income (the full gross amount before CIS deductions)
• The total CIS deductions that were taken across all payments

HMRC calculates your tax bill on the full income, then offsets the CIS deductions you've already had taken. The net result is either a reduced bill or a refund.

Example:

You earn £50,000 of labour income in a tax year. You've had CIS deductions of £10,000 (20% across the year). After costs, your taxable profit is £35,000. Your income tax and Class 4 NI bill comes to £7,500. HMRC offsets the £10,000 of CIS deductions — you get a refund of £2,500.

If you've had a bad run of 30% deductions (£15,000 deducted), the refund is larger — but it still takes months to arrive. Staying registered at 20% is worth more in cash flow than the refund will ever be.

Gross Payment Status: When You Don't Get Deducted At All

Gross payment status (GPS) means a 0% deduction rate — you receive the full payment and handle your own tax through Self Assessment. HMRC only grants it to businesses that meet strict tests:

• Business test — running a genuine construction business
• Turnover test — net construction turnover (excluding materials) of at least £30,000 per year for sole traders
• Compliance test — all HMRC obligations (tax returns, payments) up to date for the previous 12 months

Most self-employed tradespeople starting out won't qualify immediately — the £30,000 net turnover threshold rules many people out in year one. But once your turnover grows and your compliance record is clean, applying for GPS is worth doing.

For the full picture on CIS — contractor obligations, monthly returns, and what contractors must do — see our CIS explainer guide.

Common CIS Mistakes for Self-Employed People

Not registering. 10 percentage points on every payment. The only reason not to register is if you genuinely don't know about CIS — and now you do.

Not providing your UTR to contractors. Even if you're registered, the contractor can't apply the 20% rate unless they can verify you with HMRC — and they can't verify you without your UTR.

Lumping materials and labour on invoices. Over-deduction happens when the contractor can't separate what's labour. Itemise everything — even if the materials amount is small.

Losing payment and deduction statements. You need these to claim your CIS credit on Self Assessment. Chasing copies from contractors after the fact is slow and creates risk if they've lost records too.

Confusing the deduction with the final tax bill. CIS deductions are credits, not a fixed cost. You will reclaim most or all of it — but only if you file Self Assessment and declare the income correctly.

Use the CIS Deduction Calculator to check exactly how much will be deducted from any payment before you invoice.

This is general guidance on CIS for self-employed people, not tax advice. Speak to a qualified accountant for advice specific to your situation.

Sources

• What you must do as a CIS subcontractor — GOV.UK
• How to register as a CIS subcontractor — GOV.UK
• Register for Self Assessment if you're self-employed — GOV.UK
• Construction Industry Scheme (CIS) — GOV.UK