CIS Tax Deductions for UK Contractors: Complete Guide 2026
Last updated: May 2026
If you're a UK subcontractor — electrician, plumber, carpenter, plasterer, roofer, groundworker — you've probably noticed 20% or 30% missing from your payment before you even see it. That's CIS tax, and understanding how it works is the difference between a surprise HMRC bill and a welcome tax refund every January.
This guide explains how the Construction Industry Scheme works, why contractors deduct tax from your pay, how to get gross payment status (0% deduction), and how to claim back overpaid CIS tax via Self Assessment.
What is the Construction Industry Scheme (CIS)?
CIS is HMRC's system for collecting tax from self-employed construction workers. Instead of you paying tax once a year, the contractor (the person or business hiring you) deducts tax from every payment and sends it straight to HMRC on your behalf.
Think of it as pay-as-you-earn for subcontractors. The contractor acts like an employer, but you're still self-employed — which means you file a Self Assessment tax return at the end of the year to reconcile what was deducted vs what you actually owe.
Who does CIS apply to?
CIS applies if you:
- Work as a subcontractor in construction, building, decorating, or related trades
- Do work for a contractor (main builder, site manager, property developer, local authority)
- Are self-employed or run a limited company (not PAYE employees)
Construction work includes:
- Building, altering, repairing, decorating, or demolishing structures
- Plumbing, electrical, heating, ventilation
- Scaffolding, roofing, plastering, tiling
- Site preparation, groundwork, landscaping (if part of a construction project)
- Installing fitted kitchens, bathrooms, built-in wardrobes
NOT covered by CIS: Carpet fitting, furniture delivery, standalone landscaping (gardens with no building work), architecture, surveying. If your work is purely finishing/decoration with no structural element, you might not fall under CIS — check HMRC's CIS subcontractor guidance.
How much tax is deducted under CIS?
The deduction rate depends on your CIS registration status:
- Gross payment status: 0% deduction (you're paid in full, no tax taken)
- Net payment status (registered): 20% deduction
- Not registered for CIS: 30% deduction
Example 1: You invoice £2,000 for a plumbing job. You're registered for CIS (net payment status).
- Materials cost (not subject to CIS): £300
- Labour charge: £1,700
- CIS deduction (20% of labour): £1,700 × 20% = £340
- You receive: £2,000 - £340 = £1,660
The contractor pays the £340 directly to HMRC, and you get a monthly CIS statement showing how much was deducted. You'll claim this £340 back (or reduce your tax bill) when you file your Self Assessment return.
Example 2: Same job, but you're NOT registered for CIS.
- CIS deduction (30% of labour): £1,700 × 30% = £510
- You receive: £2,000 - £510 = £1,490
That's an extra £170 deducted every job. Over a year, this adds up to thousands in cash flow lost. Always register for CIS.
Gross vs net payment status: what's the difference?
Net payment status (20% deduction)
This is the default when you first register for CIS. The contractor deducts 20% from your labour charges and pays it to HMRC. You get 80% of your labour payment upfront, then claim back any overpaid tax when you file Self Assessment.
Who should use net payment status:
- New subcontractors (first 12 months)
- Subcontractors with inconsistent income
- Anyone who hasn't met the gross payment criteria yet
Gross payment status (0% deduction)
If you qualify, the contractor pays you in full with no CIS deduction. You're trusted to pay your own tax via Self Assessment. Huge cash flow benefit.
Who qualifies for gross payment status:
- You must pass the business test (you work in construction)
- You must pass the turnover test (£30,000+ construction income in the last 12 months as a sole trader, OR £30,000+ turnover in any consecutive 12 months for a limited company)
- You must pass the compliance test (all tax returns and payments filed on time for the last 12 months, no outstanding HMRC debts)
How to apply: Log into your HMRC business tax account and apply for gross payment status, or call the CIS helpline on 0300 200 3210. HMRC will review your application and decide within 60 days.
Tip: Apply in your second year of trading once you've filed your first tax return on time and can prove 12 months of compliance. Most subcontractors with steady work and good record-keeping get approved.
How to register for CIS as a subcontractor
You must register for CIS before you start any construction subcontract work, otherwise you'll be deducted at 30%.
How to register:
- Go to GOV.UK CIS registration
- You'll need your UTR (Unique Taxpayer Reference) from when you registered for Self Assessment
- Provide your National Insurance number, business details, and bank account
- HMRC will confirm your CIS registration and you'll appear on the contractor's verification system
Cost: Free. Registration takes 5-10 minutes online.
What happens next: When a contractor hires you, they verify your CIS status with HMRC (usually instant, online). HMRC tells them your deduction rate (0%, 20%, or 30%). The contractor deducts accordingly and gives you a monthly CIS statement showing gross pay, materials, CIS deducted, and net pay.
Understanding your CIS monthly statement
Every month, your contractor must give you a CIS statement (also called a payment and deduction statement). This can be a printed sheet, email, or accessible via the contractor's online portal.
What's on the statement:
- Gross amount: Total you invoiced (labour + materials)
- Cost of materials: Not subject to CIS (you're paid this in full)
- Labour/services: The taxable amount CIS is calculated on
- CIS deduction: Tax deducted at 20% or 30%
- Net amount paid to you: What actually hit your bank
- Employer/contractor details: Name, UTR, HMRC office number
Why this matters: You must keep every CIS statement because HMRC will ask for the total CIS deducted when you file your Self Assessment return. Without these statements, you can't prove how much tax was already paid, and you might lose your refund.
Pro tip: Scan or photograph every CIS statement and store them in a folder (Notion, Dropbox, Google Drive). When January tax deadline comes, you'll have everything ready in one place. Use the UK Contractor & IR35 Tracker to log CIS deductions per job and auto-calculate your year-to-date CIS total.
How to claim CIS tax back via Self Assessment
CIS deductions are advance payments of your Income Tax and National Insurance. At the end of the tax year (5 April), you file a Self Assessment return, and HMRC calculates:
- Your actual tax and NI bill based on total profit (income - expenses)
- How much CIS was already deducted and paid to HMRC
- Whether you overpaid (refund) or underpaid (balance owed)
Step-by-step: claiming CIS deductions on your tax return
- Calculate your total CIS deductions: Add up all the "CIS deduction" amounts from your monthly statements (January to December, or April to April if you prefer tax year). Example: 10 jobs, £250 deducted per job = £2,500 total CIS deductions.
- Log in to HMRC Self Assessment: Use your Government Gateway ID at GOV.UK Self Assessment
- Complete the CIS section: Under "CIS deductions" or "Income from self-employment", enter your total gross income and total CIS deducted. HMRC's system will automatically subtract the CIS amount from your tax bill.
- Submit your return by 31 January (online deadline)
- Wait 5-10 working days: If you're owed a refund, HMRC pays it into your bank account. If you owe more, you pay the balance by 31 January (or via Payment on Account if your bill exceeds £1,000).
Example: CIS refund calculation
- Total income (labour): £40,000
- Business expenses: £5,000 (van, tools, fuel, insurance)
- Taxable profit: £35,000
- Income Tax owed (20% basic rate): (£35,000 - £12,570 personal allowance) × 20% = £4,486
- Class 2 NI: £179
- Class 4 NI: (£35,000 - £12,570) × 9% = £2,019
- Total tax + NI owed: £6,684
- CIS already deducted: £8,000 (20% of £40k gross labour)
- Refund due: £8,000 - £6,684 = £1,316
In this example, you'd get £1,316 back from HMRC within 5-10 days of filing your return. This is common for subcontractors on net payment status (20%) because CIS deductions assume you have no expenses, but most tradespeople have £5k-15k in legitimate business costs (van, tools, materials, insurance, fuel).
What if I owe HMRC money instead?
If your CIS deductions don't cover your full tax and NI bill, you'll owe the balance. This usually happens if:
- You're on gross payment status (0% deduction) and didn't save for tax
- You earned non-CIS income (e.g., private cash jobs, rental income, dividends) that wasn't subject to CIS
- You had a very profitable year and moved into the higher tax bracket (40%)
Example: Balance owed
- Total income: £70,000 (£50k CIS labour + £20k private jobs, no CIS deducted)
- Expenses: £10,000
- Taxable profit: £60,000
- Tax + NI owed: ~£14,500
- CIS already paid: £10,000 (20% of £50k)
- Balance owed: £4,500
You must pay this by 31 January. If your bill exceeds £1,000, HMRC will also set up Payment on Account — two advance payments for next year's tax, due 31 January and 31 July. Read our Payment on Account guide to understand how this works.
Can I be employed and CIS subcontractor at the same time?
Yes. This is very common for tradespeople who:
- Work for a building firm Monday-Friday (PAYE employment)
- Do private subcontract jobs on weekends (CIS self-employment)
You'll have two sources of tax deduction:
- Your employer deducts Income Tax and NI via PAYE
- Your weekend contractor deducts CIS tax (20% or 30%)
How it works on your tax return: You file Self Assessment covering both. HMRC adds your PAYE and CIS deductions together, calculates your total tax owed on combined income, and refunds the difference (or you pay extra if you've underpaid).
Tip: If you're employed full-time and your Self Assessment bill is under £3,000, you can ask HMRC to collect it via PAYE (spread over 12 months) instead of paying a lump sum in January. This only works if you file by 30 December.
Common CIS mistakes (and how to avoid them)
1. Not separating materials from labour on invoices
Mistake: You invoice £3,000 with no breakdown. The contractor assumes it's all labour and deducts 20% CIS on the full £3,000 = £600 deducted.
Fix: Always separate materials from labour on your invoice. "Labour: £2,000 | Materials: £1,000". CIS is only deducted on the labour portion, so you'd only lose £400 instead of £600. Huge cash flow difference over a year.
2. Losing CIS statements
Mistake: You file Self Assessment and can't find your CIS statements. You guess the total deductions or leave them out. HMRC disallows the deduction = you pay tax twice.
Fix: Scan every CIS statement the day you receive it. Store in Notion, Dropbox, or Google Drive. Add a folder called "CIS 2026-27" and drop PDFs in there monthly.
3. Not registering for CIS before starting work
Mistake: You start a subcontract job without registering for CIS. The contractor deducts 30% because HMRC has no record of you.
Fix: Register for CIS the moment you know you'll be doing subcontract work. It's free and takes 10 minutes. Even if you've already started, register now — your next payment will drop to 20%.
4. Assuming CIS covers all your tax
Mistake: You think "20% is deducted, so I don't owe anything." Then you file Self Assessment and discover you owe £2,000 because you had non-CIS income or moved into the 40% tax bracket.
Fix: CIS deductions are estimates. They don't account for expenses, other income, or your personal allowance. Always file Self Assessment to reconcile the real number. If you earn over £50k, consider putting 30% of gross income aside for tax to be safe.
Track CIS deductions in Notion
Every CIS subcontractor needs a system to track jobs, invoices, CIS deductions, and expenses. Without it, you'll scramble every January trying to piece together 12 months of payments.
Use the UK Contractor & IR35 Tracker to:
- Log every job with gross pay, materials, labour, and CIS deducted
- Auto-calculate year-to-date CIS total (copy this straight into Self Assessment)
- Track multiple contractors and their UTRs
- Link expenses (van, tools, fuel) to jobs for accurate profit calculation
- Know exactly how much tax you'll owe or get back before filing
Alternatively, if you're a general sole trader or freelancer (not construction-specific), use the UK Self Assessment & MTD Tracker to manage your income, expenses, and quarterly MTD submissions.
Frequently Asked Questions
What is CIS tax and who pays it?
CIS (Construction Industry Scheme) is a tax deduction system where contractors (main builders, site managers) deduct 20% or 30% from subcontractors' payments and pay it directly to HMRC. Subcontractors then claim this back via Self Assessment if they've overpaid. CIS applies to construction trades: building, decorating, plumbing, electrical work, demolition, scaffolding, and site preparation in the UK.
How much CIS tax is deducted from my payment?
It depends on your CIS status. Gross payment status: 0% deduction (you're paid in full). Net payment status: 20% deduction. Not registered for CIS: 30% deduction. Most subcontractors start on net payment status (20%) and can apply for gross status after proving good tax compliance for 12 months.
Do I get CIS deductions back at the end of the year?
Yes, if you've overpaid tax. CIS deductions are advance payments toward your Income Tax and National Insurance bill. When you file your Self Assessment tax return, HMRC calculates your actual tax owed, subtracts the CIS deductions already paid, and refunds the difference (usually within 5-10 working days). If you've underpaid, you owe HMRC the balance.
How do I register for CIS gross payment status?
Apply online via your HMRC business tax account or call the CIS helpline (0300 200 3210). You must meet three tests: pass the business test (you work in construction), pass the turnover test (£30,000+ construction income in the last 12 months as sole trader, or £30,000+ in any 12 months for limited companies), and pass the compliance test (all tax returns and payments filed on time for 12 months). HMRC decides within 60 days.
Can I be employed and CIS subcontractor at the same time?
Yes. If you're employed (PAYE) during the week and do subcontract work on weekends or evenings, you file one Self Assessment return covering both. Your employer deducts tax via PAYE, and your main contractor deducts CIS tax. HMRC adds both together when calculating your refund or balance owed. Many tradespeople start this way before going fully self-employed.
Summary
CIS is how HMRC collects tax from construction subcontractors. Contractors deduct 20% (net) or 30% (unregistered) from your labour payments and pay it to HMRC. You claim it back via Self Assessment if you've overpaid.
Always register for CIS to drop from 30% to 20% deduction. Apply for gross payment status (0%) once you've got 12 months of clean tax compliance and £30k+ turnover.
Keep every CIS statement. You'll need the total to claim your refund. Scan them monthly and store digitally.
File Self Assessment by 31 January to reconcile CIS deductions vs actual tax owed. Most subcontractors get a refund because CIS doesn't account for expenses.
Disclaimer: This article is for information only, not professional tax or legal advice. CIS rules and rates are subject to change. Always verify current deduction rates and compliance requirements on GOV.UK or consult a qualified UK accountant. All figures based on 2026/27 tax year rates.