- Construction Industry Scheme
- an HMRC scheme where a contractor deducts tax from a subcontractor's labour payment and pays it to HMRC as an advance toward the subcontractor's Income Tax and National Insurance.
- Contractor
- the business that pays subcontractors and must verify them, deduct CIS and report it to HMRC each month.
- Subcontractor
- the worker or business carrying out the construction work and receiving payment under deduction.
- Deduction rate
- 20% for registered subcontractors, 30% for unregistered or unverified, and 0% for those with Gross Payment Status.
- Qualifying materials
- the cost of materials, plant hire and VAT, which are removed from the payment before the CIS rate is applied, so CIS is charged on labour only.
- Gross Payment Status
- HMRC approval that lets a subcontractor be paid in full with no CIS deduction, settling all tax through self-assessment instead.
Key facts
- CIS rates for 2026/27 are unchanged: 20% registered, 30% unregistered, 0% gross status
- CIS applies to the labour element only after removing materials and VAT
- On a £2,000 invoice with £1,500 labour, registered deduction is £300 and net paid is £1,700
- Unregistered deduction on the same invoice is £450 and net paid is £1,550
CIS is a prepayment, not a final tax. Because it ignores your personal allowance and expenses, most subcontractors have too much taken and are due a refund through self-assessment. Work out the exact deduction with the CIS Tax Calculator, and see the tax it counts toward with the Income Tax Calculator.
If you are weighing how to trade, a CIS subcontractor can operate as a sole trader or through a company, which we compare at limited company vs sole trader.
What CIS is and why it exists
HMRC introduced CIS to address historically high levels of tax non-compliance in the construction industry, where cash-in-hand payments and disappearing subcontractors created significant tax gaps. Under CIS, contractors who engage subcontractors for construction work must register with HMRC, verify each subcontractor's status, and apply the correct deduction rate.
CIS applies to:
- All contractors paying subcontractors for construction work
- Subcontractors receiving payment for construction work
- Construction work on buildings, structures, roads, pipelines, and civil engineering
CIS does not apply to:
- Salaried employees (employed under PAYE, not CIS)
- Some specialist trades not classified as construction (architects, surveyors, consultants)
- Property developers buying buildings but not directly engaged in construction
The three CIS deduction rates
| Registration status | Deduction rate | When applied |
|---|---|---|
| Gross payment status | 0% | Subcontractor has good compliance history and passes HMRC's turnover test |
| Registered with CIS | 20% | Most common rate for subcontractors who have registered with HMRC |
| Not registered with CIS | 30% | Applied to subcontractors HMRC cannot verify |
The 30% rate is a significant penalty for non-registration. On a £2,000 payment, the difference between 20% and 30% is £200 extra deducted each invoice, entirely avoidable by registering.
How to register as a subcontractor
Registration is straightforward through the HMRC CIS Registration Service at gov.uk/cis. You need:
- National Insurance number
- Unique Taxpayer Reference (UTR) number
- Trading name (if applicable)
The registration process takes 5 to 10 working days. Once registered, contractors verify your status before applying deductions. Verification is done by the contractor, not you, through their HMRC account.
Expert Tip
Register for CIS before you receive your first construction payment, not after. Every payment received before registration is subject to the 30% unregistered rate, which is deducted in full and cannot be reduced retroactively. If you have already received unregistered deductions, you still reclaim the overpaid amount through self-assessment, but you will have waited longer for cash that should have been in your account.How CIS deductions appear on your payment statement
When a registered contractor pays you, they must give you a payment and deduction statement showing:
- Gross amount of the payment (materials plus labour)
- Amount deducted (20% or 30% of the labour element, not materials)
- Net payment made to you
Importantly: CIS deductions are applied only to the labour element of the payment, not the cost of materials. If your invoice is £3,000 including £1,000 for materials, the CIS deduction applies only to the £2,000 labour element.
| Invoice component | CIS deduction applies? |
|---|---|
| Labour | Yes |
| Materials (at cost, verified) | No |
| Plant hired in | No |
| Plant owned by subcontractor | Yes |
| Travel/accommodation | Depends |
How to reclaim your overpaid CIS tax
Most subcontractors overpay through CIS because the 20% deduction rate does not account for allowable business expenses, the personal allowance, or the actual income tax rate on profits. The reclaim process is through self-assessment.
Worked example: annual CIS tax position
Annual CIS invoices: £45,000 (labour only, no materials)
CIS deducted at 20%: £9,000 (paid to HMRC by contractors on your behalf)
Allowable business expenses: £8,000 (tools, van, clothing, fuel)
Taxable profit: £45,000 minus £8,000 = £37,000
Income tax on £37,000: (£37,000 minus £12,570) x 20% = £4,886
NI (Class 4) on £37,000: (£37,000 minus £12,570) x 6% = £1,466
Total actual tax and NI due: £6,352
CIS already paid on your behalf: £9,000
Refund owed: £9,000 minus £6,352 = £2,648
In this example, the CIS system has collected £9,000 but the actual liability is only £6,352. HMRC repays the £2,648 after your self-assessment return is processed.
CIS Tax Calculator
Estimate your annual CIS position and expected refund.
The self-assessment deadline and payment schedule
All subcontractors working under CIS must file a self-assessment tax return. Deadlines for the 2026/27 tax year (ending 5 April 2026):
| Action | Deadline |
|---|---|
| Online self-assessment return | 31 January 2027 |
| Pay any tax due | 31 January 2027 |
| First payment on account (2026/27 estimate) | 31 January 2027 |
| Second payment on account | 31 July 2027 |
The payment on account system catches many first-time filers off guard. If you owe £6,352 in tax for 2026/27, HMRC also requires a first payment on account of £3,176 (50% of the estimated 2026/27 liability), making your total January payment £9,528. See the Self Assessment Calculator for a full breakdown.
Gross payment status: the goal for high-volume subcontractors
If your CIS deductions are consistently resulting in large refunds, it may be worth applying for gross payment status. Under gross payment status, contractors pay you the full invoice amount with no deduction. You then pay your tax bill directly through self-assessment.
Requirements for gross payment status:
- Business turnover must exceed £30,000 (sole trader) or £100,000 (partnerships/companies) in the previous 12 months
- Clean compliance history with HMRC (no late filings, no outstanding payments)
- Business activities must primarily be construction work
HMRC reviews gross payment status annually and can withdraw it if compliance deteriorates.
Official sources
Related Calculators
Frequently Asked Questions
20% for registered subcontractors, 30% for unregistered subcontractors. The deduction is applied to the labour element of the payment only, not to materials supplied.
No. CIS deductions are advance payments toward your annual income tax and NI liability. At year end through self-assessment, HMRC compares what was deducted with your actual tax bill. Any excess is refunded.
HMRC typically processes self-assessment returns and issues refunds within 4 to 6 weeks of submission. Filing early before 31 January generally results in faster processing.
Both registrations are separate. You register for CIS through the CIS registration service and for self-assessment through a separate process. Both are needed.
The 30% rate applies when you are not registered for CIS or HMRC cannot verify your details. Registering with HMRC lowers the deduction to 20%, so it is worth registering early to keep more of each payment during the year.
Take the invoice total, remove the cost of materials and any VAT to get the labour amount, then apply your rate. On a £2,000 invoice with £1,500 of labour and £500 of materials, a registered subcontractor has 20% of £1,500, which is £300, deducted and is paid £1,700.
No. CIS is charged on the labour element only. The cost of materials, plant hire and VAT is taken out first, so a deduction applied to the whole invoice is wrong and costs you money. Always split labour and materials on the invoice.
Gross Payment Status lets a subcontractor be paid in full with no CIS deduction, settling all tax through self-assessment. To qualify, HMRC checks that you are registered, run your business through a bank account, are up to date with tax and National Insurance, and meet a turnover test.
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James Hartley is a Chartered Management Accountant (CIMA) with more than eight years of experience in UK tax, payroll and compliance. He holds a BSc in Finance and Economics from the University of Manchester and spent his early career at a Big 4 accounting firm. He founded WhatsUK to build free UK financial calculators and guides verified against official HMRC sources. He authors every calculator and article on WhatsUK.
Sources & Official References
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Disclaimer: This calculator provides estimates based on standard HMRC rates for 2026/27. Results may vary based on individual circumstances. This is not financial advice. Always consult a qualified accountant or CIMA-qualified financial adviser for personal tax matters.