The Construction Industry Scheme (CIS) changes how subcontractors get paid. Under it, contractors deduct money from your payments and pass it to HMRC as an advance towards your tax and National Insurance. Getting it right keeps your cashflow predictable and your tax tidy.
How CIS deductions work
When a contractor pays a subcontractor for construction work, they deduct a percentage and pay it to HMRC on your behalf. The rate depends on your status:
- 20 per cent if you are registered with CIS.
- 30 per cent if you are not registered or cannot be verified.
- 0 per cent if you hold gross payment status.
What the deduction applies to
The deduction is taken from the labour element only. It does not apply to the cost of materials, plant hire, or VAT. So a contractor should strip out materials before calculating the deduction. To see the figures on a specific payment, try our CIS deduction calculator.
Verification and returns
Before paying you, a contractor verifies your status with HMRC, which sets the rate. Contractors then file a monthly CIS return and give you a payment and deduction statement. Keep these: they are your evidence of tax already paid, which you offset against your own bill at year end.
CIS and VAT together
CIS and the VAT domestic reverse charge often apply to the same payments, and the reverse charge uses the CIS rules to decide when it bites. If you are dealing with one, you usually need to understand the other, see the VAT domestic reverse charge explained.
Registering for CIS is almost always worth it: 20 per cent deducted beats 30, and gross status is better still if you qualify.