CIS Payments Explained: The Complete Guide for UK Subcontractors

If you work as a subcontractor in UK construction, CIS payments affect every invoice you send. The Construction Industry Scheme (CIS) requires contractors to deduct tax from your payments before you receive them — and getting the details wrong costs real money on both sides.

This guide covers how CIS deductions are calculated, the three deduction rates, how to register, how to claim your deductions back, and what changes from April 2026. Use our CIS Deduction Calculator to check the exact figures for your next payment.

This is general guidance on CIS, not tax advice. For your specific situation, speak to a qualified accountant.

What Is the Construction Industry Scheme?

CIS is an HMRC scheme that applies to payments from contractors to subcontractors for construction work in the UK. Under CIS, contractors deduct money from subcontractor payments and pass it to HMRC. These deductions count as advance payments towards the subcontractor's tax and National Insurance bill — they are not an extra tax.

The scheme applies to:

• Site preparation, demolition, and alterations
• Building work, repairs, and decorating
• Installation of heating, lighting, drainage, and other utility systems
• Civil engineering work

It does not apply to architecture, surveying, scaffolding hire without labour, carpet fitting, or material delivery without installation.

CIS applies to all construction work on permanent or temporary buildings and civil engineering projects within the UK.

The Three CIS Deduction Rates

HMRC assigns one of three rates when a contractor verifies you:

Status	Deduction Rate	Who Qualifies
Registered subcontractor	20%	Registered for CIS with HMRC
Unregistered subcontractor	30%	Not registered — higher rate applies automatically
Gross payment status	0%	Approved by HMRC — must meet turnover and compliance tests

The difference between 20% and 30% on a £10,000 labour payment is £1,000 sitting with HMRC instead of in your account. Registration takes minutes online and saves you that cash flow hit on every payment.

How CIS Deductions Are Calculated

Deductions apply only to the labour element of your invoice. Contractors must subtract qualifying costs before applying the CIS percentage.

Excluded from the deduction calculation:

• VAT
• Materials you paid for directly (with receipts as evidence)
• Plant and equipment hire
• Consumable stores and fuel (excluding travel)
• Manufacturing or prefabrication costs

Example calculation:

You invoice a contractor £8,000 for a bathroom refit:

Item	Amount
Labour	£5,000
Materials (tiles, sanitaryware — receipts provided)	£2,200
VAT (20% on total)	£1,440
Gross invoice total	£8,640

CIS deduction at 20% applies to the labour portion only: £5,000 × 20% = £1,000

You receive: £8,640 − £1,000 = £7,640

The £1,000 goes to HMRC as an advance payment against your tax bill.

This is where mistakes happen. If you don't separate materials from labour on your invoice, the contractor may deduct CIS from the entire amount — costing you hundreds of pounds in cash flow. Always itemise materials separately and keep receipts.

Do You Need to Register for CIS?

Contractors must register for CIS before paying their first subcontractor, regardless of payment method.

Subcontractors don't have to register, but not registering means the 30% higher rate applies to every payment. Registration brings you to the standard 20% rate.

How to register as a subcontractor:

1. You need a Unique Taxpayer Reference (UTR). If you're already registered for Self Assessment, you have one. If not, register for Self Assessment first.
2. Register for CIS online using your UTR.
3. Limited companies register using their company UTR.

Registration is free and can be done online in a few minutes.

How Verification Works

Before a contractor pays you for the first time, they must verify you with HMRC. This is not optional — it's a legal requirement.

The contractor contacts HMRC with your details (name, UTR, National Insurance number). HMRC checks your registration and tells the contractor which deduction rate to apply.

Once verified, contractors don't need to re-verify you if you've appeared on their CIS returns within the current or previous two tax years.

Monthly CIS Returns

Contractors must file a CIS return every month, covering the tax month (6th to 5th). The return lists all payments to subcontractors and deductions made.

Deadline: Returns are due within 14 days of the end of each tax month — typically by the 19th of the following month.

Penalties for late returns:

How Late	Penalty
1 day	£100 fixed penalty
2 months	Additional £200
6 months	Greater of £300 or 5% of deductions due
12 months	Additional 5% of deductions due

Contractors must also provide each subcontractor with a written payment and deduction statement within 14 days of the end of each tax month. Keep these — you need them to claim your deductions back.

How to Claim Back CIS Deductions

CIS deductions are advance tax payments, not a permanent cost. You claim them back when you file your tax return.

Sole traders and partnerships: Report your full income (before deductions) on your Self Assessment tax return. Enter the total CIS deductions separately. HMRC offsets the deductions against your tax and National Insurance bill. If HMRC deducted more than you owe, you get a refund.

Limited companies: Claim CIS deductions against your PAYE liabilities through your monthly Full Payment Submissions and Employer Payment Summaries. Unclaimed deductions carry forward within the tax year. If you have no employees, you can still reclaim through your Corporation Tax return.

Keep your payment and deduction statements. Without them, reclaiming deductions is slower and harder to evidence.

Gross Payment Status: How to Pay No CIS Deductions

Gross payment status means 0% deductions — you receive the full payment amount. But HMRC only grants it if you meet strict tests:

For sole traders:

• Minimum annual turnover of £30,000 (net of materials and VAT)
• Up-to-date with all tax returns and payments
• No serious compliance failures

For partnerships: £30,000 per partner, up to a maximum based on the partnership.

For limited companies: £30,000 in net turnover, plus the company and its directors must have clean compliance records.

HMRC reviews gross payment status annually. If your compliance slips — a late Self Assessment return, an overdue VAT payment — they can revoke it. Under planned changes due from April 2026, the wait to reapply after a fraud-linked removal may increase to five years (currently one year). Check HMRC guidance for the latest position on GPS revocation rules.

Planned Changes from April 2026

The following CIS changes are due to take effect from 6 April 2026, based on HMRC announcements and Finance Act provisions. Check GOV.UK for the latest confirmed guidance, as implementation details may change.

Mandatory NIL returns. Contractors will be required to submit a monthly CIS return even when no subcontractor payments were made in that period, unless HMRC has been notified in advance. Under the current rules, NIL returns are not always required. Missing a NIL return under the new rules would risk the same late filing penalties as a missing standard return.

Longer GPS revocation period for fraud-linked removals. Where HMRC removes gross payment status due to fraud-related compliance failures, the wait to reapply is expected to increase from one year to five years. Routine compliance slips (late returns, overdue payments) are not currently indicated to trigger the five-year bar, but maintaining clean records remains essential.

Enhanced enforcement powers. HMRC is expected to gain broader powers to act where a contractor "knew or should have known" they were involved in a fraudulent CIS-linked transaction. This targets supply chain fraud but may increase scrutiny across the board.

Public sector exemption. Payments to local authorities and certain public sector bodies are due to become fully exempt from CIS, replacing the previous concession.

If you rely on gross payment status, the key step is maintaining compliance records. Monitor HMRC guidance for confirmed details as the April 2026 date approaches.

Common CIS Mistakes (and How to Avoid Them)

Not separating materials from labour on invoices. If your invoice shows a single lump sum, the contractor may deduct CIS from everything — including materials. Always itemise materials separately and keep receipts. For trade-specific invoicing guidance, see our invoicing guide for plumbers.

Not registering as a subcontractor. The difference between 20% and 30% on £50,000 of annual labour payments is £5,000 in cash flow. Registration is free.

Contractors not verifying before first payment. Paying a subcontractor without verification is a compliance breach. HMRC can charge penalties and refuse to credit the deductions to the subcontractor.

Not keeping payment and deduction statements. These are your evidence for reclaiming deductions. Without them, your accountant has to chase copies from every contractor you worked with.

Applying CIS to excluded work. CIS doesn't apply to all construction-adjacent work. Architecture, surveying, scaffolding hire (without labour), and material delivery are excluded. Deducting CIS from excluded work creates incorrect returns.

CIS Checklist for Subcontractors

1. Register for CIS (if not already registered)
2. Provide your UTR to every contractor before first payment
3. Itemise materials and labour separately on every invoice
4. Keep receipts for all materials
5. Collect and file payment and deduction statements monthly
6. Report CIS deductions on your Self Assessment or Corporation Tax return
7. Review gross payment status eligibility annually (if applicable)
8. Check planned April 2026 rule changes for any impact on your business

Use the CIS Deduction Calculator to check the exact net payment and deduction amount for any job before you invoice. For help structuring your quotations to separate materials from labour correctly, see our guide on how to write a job quotation.

Sources

• Construction Industry Scheme (CIS) — GOV.UK
• CIS contractor: make deductions and pay subcontractors — GOV.UK
• CIS subcontractor obligations — GOV.UK
• CIS 340: Guide for contractors and subcontractors — GOV.UK