CIS Scheme Explained for Subcontractors: What You Need to Know

The Construction Industry Scheme (CIS) affects hundreds of thousands of UK tradesmen. If you do subcontract work for contractors, it's very likely you're already in it — but many tradesmen don't fully understand how it works. Here's the plain-English version.

What is CIS?

CIS is a HMRC scheme that requires contractors to deduct money from subcontractors' payments and pass it to HMRC. The deductions count as advance payments towards the subcontractor's tax and National Insurance bill.

The deduction rate depends on your status:

• Registered subcontractor — 20% deduction from labour
• Unregistered subcontractor — 30% deduction from labour
• Gross payment status — 0% deduction (you pay HMRC directly at year end)

Who counts as a contractor?

Anyone who pays subcontractors for construction work. This includes:

• Building companies
• Large developers
• Letting agents managing maintenance works over £1m/year
• Some government bodies

If a homeowner hires you directly, CIS does not apply — it's only between businesses.

Who counts as a subcontractor?

If you're doing construction work (building, demolition, installation, repair, decoration) for a contractor rather than an end customer, you're a subcontractor for CIS purposes. This includes:

• Electricians working for a main contractor
• Plumbers on new builds
• Roofers subcontracted through a building company
• Groundworkers on a construction site

How to register as a subcontractor

1. Go to HMRC CIS registration
2. You'll need your UTR number (Unique Taxpayer Reference)
3. Registration takes a few minutes online
4. Once registered, you're verified at 20% — instead of 30%

How deductions work on your invoice

CIS deductions apply to labour only — not to materials. This is why your invoices must clearly separate labour and materials.

Example:

Labour: £800
Materials: £300
CIS deduction (20% of labour): −£160
Total payment to you: £940

The contractor pays you £940 and sends £160 to HMRC on your behalf.

Getting back your CIS deductions

The £160 in the example above isn't lost — it's paid towards your tax bill. At the end of the tax year, when you submit your Self Assessment return:

1. HMRC calculates your total tax and NI due
2. They subtract the CIS deductions made during the year
3. If the deductions exceed what you owe, you get a refund

Many self-employed tradesmen end up getting money back from HMRC at year end because their CIS deductions were higher than their tax bill.

Monthly CIS statements

Each month, contractors must give you a CIS deduction statement showing how much was deducted. Keep these — you'll need them for your tax return.

If a contractor doesn't give you statements, ask for them in writing. They're legally required to provide them.

Applying for gross payment status

If your turnover exceeds around £30,000/year (in construction) and you have a good compliance record, you can apply for gross payment status — meaning contractors pay you in full and you handle your own tax payments.

This improves your cashflow significantly. Apply via your HMRC online account.

Common mistakes

• Not registering — you'll pay 30% instead of 20% until you do
• Not separating materials on invoices — contractors may deduct from the full invoice amount
• Not keeping CIS statements — you lose your evidence of deductions
• Forgetting to claim deductions on your tax return — this is the most common and most expensive mistake