Who it covers, the three deduction rates, where the money goes, and how you get yours back. The whole scheme on one page — read it in the van.
CIS is HMRC collecting your tax as you go. When a contractor pays a subcontractor for construction work, they hold back a slice of the labour — 20% if you're registered, 30% if you're not — and send it to HMRC. That money isn't a separate tax. It's an advance payment towards your tax and National Insurance.
When your tax return goes in, everything that's been deducted comes off your bill. Deducted more than you owe? The difference comes back to you. That last sentence is where most subbies leak money — more on that further down, or jump straight to how CIS refunds work.
Contractor: anyone who pays subcontractors for construction work. The big national firms, obviously — but also a two-man plumbing outfit that brings in a sparkie for a job. Pay a subbie, and CIS duties land on you: verifying, deducting, filing monthly. Contractors must register.
Subcontractor: anyone doing construction work for a contractor. Registration is your choice — but an expensive one to skip, because unregistered means 30% off instead of 20%.
Both at once: completely normal. A heating firm subbing to a main contractor while paying its own subbies is both, and registers as both.
The odd one: a business outside construction that spends over £3 million on construction in 12 months counts as a contractor too — that's how a supermarket chain refitting stores ends up running CIS.
| Rate | Who gets it | On £2,000 of labour |
|---|---|---|
| 30% | Not registered, or the contractor couldn't verify you with HMRC | £600 held back |
| 20% | Registered subcontractor — the standard rate | £400 held back |
| 0% | Gross payment status — you're paid in full and settle your own tax | £0 held back |
The gap between 30% and 20% is £200 on every £2,000 of labour. Registering is free and takes about twenty minutes — if you're on 30%, fixing it is the fastest pay rise in construction. And the extra you've already had taken isn't gone: it's tax paid on account, and it comes back when you file.
Run your own invoice through the free CIS calculator — 20%, 30% or gross, materials split out, thirty seconds on your phone.
Most construction work on buildings and structures — permanent or temporary — plus civil engineering like roads and bridges. That includes:
Outside the scheme, even on a building site:
One more boundary that matters: CIS is for the self-employed. If you're on the books as an employee, PAYE handles your tax and CIS doesn't touch you. It's the working reality that decides it, not what anyone calls it.
Say you're a registered subbie on 20%, and you invoice a contractor £2,000 for a job: £1,300 labour, £700 materials (what the copper and the boiler parts actually cost you — separate lines, like we said).
Same job unregistered? £390 taken instead of £260 — £130 more held back on one invoice, and the same again on every invoice until you register. It comes back eventually through the return, but it's your cash flow lending HMRC money at 0% in the meantime.
A steady trickle of subbies register properly and still end up on 30%. Almost always it's a verification mismatch: the contractor verifies you with HMRC using details that don't match what HMRC holds. You registered as J Smith, you invoice as JS Plumbing & Heating; the UTR's got a digit wrong on the contractor's system; you went ltd and the company was never CIS-registered even though you were as a sole trader.
HMRC can't match you, tells the contractor "unmatched — deduct 30%", and nobody mentions it until you notice the money's short. The fix is boring and works: give every new contractor your exact registered name and UTR in writing before the first invoice, and check the first statement against what you expected. If 30% is coming off and you don't know why, that's a ten-minute phone call to put right — ring us if the contractor's getting nowhere.
Deductions apply to labour only. What you actually paid for materials comes off before the percentage is worked out. So a £2,000 job with £700 of materials should see 20% taken off £1,300 — that's £260, not £400.
Invoice it all as one line and plenty of contractors will deduct off the lot — £140 of tax on your copper pipe, every job, until Self Assessment unwinds it a year later. Split the lines, keep the money. The calculator shows the split on any invoice.
Register online at gov.uk. You'll need your UTR (Unique Taxpayer Reference — the ten-digit number on anything HMRC sends you). Haven't got one? Register as self-employed for Self Assessment and tick "working as a subcontractor" — you'll be registered for both at once.
Once you're in, contractors verify you at 20% instead of 30%. That's the whole trick. No annual renewal, no fee — one job done once.
Because deductions come off your gross labour — before the van, tools, fuel, insurance and phone that lower your real bill — most subbies with normal running costs end up having paid too much by year end. Anyone who's spent time on the 30% rate almost always has.
Sole traders get it back through Self Assessment — deductions offset against the bill, difference refunded, typically 2–6 weeks after filing. Ltd companies offset deductions against their PAYE bill in-year and claim any balance after 5 April. Behind on returns? You can generally go back up to four tax years — the refund often beats the penalties.
The full picture, including what changed in April 2026: CIS refunds — how to get back what HMRC's been holding.
CIS and VAT don't talk to each other, but they share your invoice. VAT never enters the deduction maths. And once your turnover passes the £90,000 VAT threshold, a second rule turns up: on CIS work between two VAT-registered businesses, the domestic reverse charge usually applies — meaning no VAT on your invoice at all, and your customer accounts for it instead.
Get that wrong in either direction and invoices bounce. The whole thing in plain English: the reverse charge, explained.
Qualify for gross payment status and nothing is deducted at source: you're paid in full and settle your own tax. Best cash flow in the scheme — and the most discipline required, because the tax bill still lands, just later, all at once.
The short version of qualifying: a clean record with HMRC — returns and payments on time — and net construction turnover (excluding VAT and materials) of at least £30,000 as a sole trader, with higher combined tests for partnerships and companies. HMRC reviews compliance after you're in, so it has to be kept, not just won. Full guide coming in a fortnight — meanwhile, if you think you're close to qualifying, ring us and we'll tell you straight.
Since April 2026, sole traders earning over £50k also file quarterly MTD updates — five filings a year instead of one. CIS deductions, quarterly filings, reverse charge VAT: none of it is hard on its own, but together it's a part-time admin job you didn't apply for. That's the job we do — deductions tracked, refunds claimed, every filing handled, one fixed fee, all from your phone.
No — it's a collection method. Deductions are advance payments towards your tax and National Insurance. Your actual bill is worked out when you file, with your expenses claimed — which is why so many subbies are owed money back.
Legally, no. Financially, yes: unregistered means 30% deducted instead of 20% — £200 more per £2,000 of labour. It's free and takes twenty minutes.
No — labour only. Materials you actually paid for come off before the percentage is applied. Separate lines on the invoice, always. Check any invoice in the calculator.
The opposite. Filing is how deductions get offset against what you owe — and how refunds come back. Over £50k, MTD quarterly updates apply on top since April 2026. Skip the return, donate the refund.
No. Employees pay tax through PAYE. CIS is for the self-employed — and it's the reality of the arrangement that decides which you are, not the label on it.