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 changed on 6 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	A further £300 or 5% of deductions due, whichever is higher

Where these figures come from: the schedule is set by Schedule 55 to the Finance Act 2009, applied to CIS monthly returns by paragraph 7 (item 6) — paragraph 8 for the £100, 9(2) for the £200, and 10(2) and 11(5) for the two later rows, each of which is "the greater of" 5% of the deductions and £300. Note that both the 6-month and 12-month penalties carry that £300 floor, and for a small monthly return 5% is usually well below it, so £300 is the figure that normally bites. HMRC's file your monthly returns page prints the same table.

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 for each partner, capped at £100,000 for the firm as a whole. Two partners means £60,000; four or more means £100,000.

For limited companies: the threshold is £30,000 for each "relevant person", capped at £100,000 — not a flat £30,000. A relevant person is a director, and in a close company (which most owner-managed companies are) also anyone who holds shares beneficially. So a single-director company whose director is also the only shareholder needs £30,000; a two-director company — or a one-director company where a spouse also holds shares — needs £60,000; three needs £90,000; four or more caps out at £100,000. The company and its directors must also have clean compliance records.

Where these figures come from: the £30,000 per-head figure is set by regulation 28(1) of the CIS Regulations 2005, and the £100,000 cap by regulation 28(2) for partnerships and 28(3) for companies. Be careful if you read regulation 28 yourself: legislation.gov.uk serves it as originally made, so paragraphs (2) and (3) still show £200,000 with no amendment note. That figure is out of date. SI 2016/348 regulation 2(5) substituted £100,000 for £200,000 in both, with effect from 6 April 2016. £100,000 is the live cap.

HMRC reviews gross payment status annually. If your compliance slips — a late Self Assessment return, an overdue VAT payment — they can revoke it, and you then wait before you can reapply. Check GOV.UK for the current reapplication rules before you rely on a particular waiting period.

What Changed on 6 April 2026

The Income Tax (Construction Industry Scheme) (Amendment) Regulations 2026 (SI 2026/289) made two amendments to the 2005 CIS Regulations. The instrument was made on 12 March 2026 and states that these Regulations "come into force on 6th April 2026", so both have been law since that date — they are not proposals to watch.

Nil returns, on a wider footing. Regulation 2(2) of the 2026 Regulations inserted a new regulation 4(9A) into the 2005 CIS Regulations. A contractor whose business includes construction operations, and who "has previously made contract payments ... but has made no such payments in a tax month", must still make a return "indicating that no such payments were made, not later than 14 days after the end of the relevant tax month" — the same 19th-of-the-month deadline as a normal return. The nil-return duty is not brand new (the old regulation 4(10) already required one for the month following a return), but it is now broader and hangs on your own payment history rather than on when you last filed.

The way out is advance notice, not silence. Regulation 4(9B) disapplies the nil-return duty if you notify HMRC that you will make no payments under construction contracts for that tax month, and the notification is made "not later than 14 days before the start of the tax month to which the notification relates." Miss that window and the return is due — you cannot decide retrospectively that a quiet month did not need one.

Payments to public bodies are outside CIS. Regulation 2(3) inserted a new regulation 23A: a payment under a construction contract "is not a contract payment if the payment is made to a person within any of paragraphs (b) to (k) of section 59(1)" of the Finance Act 2004. That list is Crown departments, local authorities, development corporations, Homes and Communities Agency, certain GLA functions, housing associations and trusts, NHS trusts and the rest of the public-body list. It turns on who receives the payment, and it does not reach section 59(1)(l) — the ordinary business that becomes a deemed contractor by spending over £3 million a year on construction.

If you are a subcontractor, the practical effect of the nil-return change falls on the contractors you work for: a quiet month is not a month off from filing. If you are also a contractor yourself, put the nil return in the calendar alongside the normal one.

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. If you are also a contractor, file a nil return for any month you pay no subcontractors — or notify HMRC at least 14 days before that month starts

Use the CIS Deduction Calculator to check the exact net payment and deduction amount for any job before you invoice, and our CIS tax calculator guide for the formula behind it. For help structuring your quotations to separate materials from labour correctly, see our guide on how to write a job quotation. For the invoice side specifically — what a CIS invoice must include and common mistakes that cost money — see our CIS invoice template guide. Electrician subcontractors looking for a trade-specific template should also see the electrician quote template guide.

If you are still getting your bearings, how does CIS work is the shorter plain-English overview, and CIS for self employed covers the sole-trader route specifically. Every deduction a contractor makes should arrive back to you documented on a CIS deduction statement — without it you cannot evidence the reclaim.

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
• The Income Tax (Construction Industry Scheme) (Amendment) Regulations 2026 (SI 2026/289) — in force 6 April 2026
• Income Tax (Construction Industry Scheme) Regulations 2005, regulation 4 — monthly return
• Finance Act 2004, section 59 — contractors
• Finance Act 2004, Schedule 11 — gross payment status: paragraph 3 (individuals), paragraph 7 (firms), paragraph 11 (companies)
• Income Tax (Construction Industry Scheme) Regulations 2005, regulation 28 — minimum turnover
• Income Tax (Construction Industry Scheme) (Amendment) Regulations 2016 (SI 2016/348), regulation 2(5) — turnover cap reduced to £100,000 from 6 April 2016
• Finance Act 2009, Schedule 55 — penalty for failure to make returns: paragraph 7 (item 6, CIS monthly returns), paragraphs 8, 9, 10 and 11
• CIS contractor: file your monthly returns — GOV.UK