CIS explained: deductions, refunds and gross payment status
How the Construction Industry Scheme works for subcontractors and contractors, how to get deducted tax back, and when gross payment status is worth applying for.
The Construction Industry Scheme (CIS) is HMRC’s way of collecting tax from the building trade as work is paid for, rather than waiting for a tax return. If you work in construction you are almost certainly inside it, as a subcontractor, a contractor or both.
If you are a subcontractor
When a contractor pays you, they deduct tax from the labour part of your invoice and pay it to HMRC on your behalf. The rate is 20% if you are registered for CIS and 30% if you are not, which is the first reason to register as soon as you start. Materials you have bought are excluded from the deduction, so show them separately on every invoice.
The deductions are not an extra tax. They are advance payments towards your own bill:
- Sole traders set the deductions against their income tax and National Insurance when the self assessment return is filed. Most subcontractors are due a refund, and HMRC normally pay it within a few weeks of filing. Filing early in the tax year gets the money back sooner.
- Limited companies offset the deductions against the PAYE, National Insurance and CIS they owe each month, through the Employer Payment Summary. Any balance left at the end of the tax year is reclaimed from HMRC.
Keep every deduction statement your contractors give you. Without them, reclaiming is slow and HMRC may ask for evidence.
If you are a contractor
You are a contractor if you pay subcontractors for construction work, including when you are a subcontractor yourself who brings in others. That means:
- Registering as a contractor with HMRC before you first pay a subcontractor.
- Verifying each subcontractor with HMRC to find out whether to deduct 20%, 30% or nothing.
- Filing a CIS return every month by the 19th, even in months when you paid nobody, and giving each subcontractor a statement of the deductions made.
- Paying the deductions to HMRC by the 22nd of the month if paying electronically.
Late monthly returns attract automatic penalties starting at £100, so this is one of the first things we take over for contractor clients.
Gross payment status
Subcontractors who pass HMRC’s tests can be paid gross, with no deductions, and settle their tax through the normal system. To qualify you need construction turnover of at least £30,000 a year (net of materials) as a sole trader, or £30,000 per director or £100,000 in total for a company, and a clean record of filing and paying on time. For a growing business with employees it transforms cash flow. We check eligibility and make the application.
Employee or subcontractor?
CIS only applies to genuinely self-employed subcontractors. If someone works set hours for you alone, uses your tools and cannot send a substitute, HMRC may treat them as an employee, with PAYE and employer’s National Insurance due. Getting this wrong is expensive, so ask us before taking someone on.
If any of this applies to you and you are not sure it is being handled correctly, get in touch. Bring your last few deduction statements and we will tell you where you stand.
This article is a general guide based on the rules as we understand them at the date of publication. It is not advice for your specific circumstances. Please speak to us before acting on anything in it.
Keep reading
What can you claim as a self-employed tradesperson?
The expenses HMRC accept for electricians, plumbers, builders and other trades, the ones they do not, and how to claim for your van.
Key tax dates for 2026/27
Every deadline that matters for sole traders, landlords, employers and limited companies in the 2026/27 tax year, in one place.
Switching accountants: what actually happens
Moving to a new accountant is simpler than most people expect. Here is the process step by step, and what you need to do.
Company cars and the tax puzzle
How benefit-in-kind tax on company cars works, why electric cars still come out ahead, and what changes for employers from 2027.
Making Tax Digital for Income Tax: what sole traders and landlords need to do
From April 2026 many self-employed people and landlords must keep digital records and report to HMRC quarterly. Here is who is affected and how to prepare.
Salary or dividends: paying yourself from your company in 2026/27
Dividend tax rates rose in April 2026. We look at how the usual small salary plus dividends approach is affected and what to check this year.
Thinking of switching accountant? It is easier than you think.
Tell us a little about your business and we will come back to you within one working day with how we can help and what it will cost. Or speak directly to Craig, our senior partner, on 07949 534119.