The Construction Industry Scheme (CIS) is HMRC's way of collecting tax from the construction industry at source. When a contractor pays a subcontractor, the contractor deducts 20% of the labour element — 30% if the subcontractor is not registered — and sends it straight to HMRC. That money counts towards the subcontractor's tax and National Insurance bill for the year, settled later through Self Assessment.
CIS applies to most construction work carried out in the UK for a contractor, whatever the job size. If you do that work self-employed — as a sole trader, in a partnership or through your own company — you should register with HMRC as a CIS subcontractor before the first payment. Registration is free and needs your Unique Taxpayer Reference (UTR).
Registration decides your rate. Before paying you, the contractor must verify you with HMRC, and HMRC tells them which deduction to apply: 20% for a registered subcontractor, 30% for one who is not. Every payment made before you register takes the 30% hit.
On every payment, the contractor works out the CIS deduction, pays it over to HMRC and passes you the rest. A registered subcontractor invoicing £1,000 of labour takes home £800. An unregistered one takes home £700.
The deduction is not a fine and it is not extra tax. It is an advance on the tax you would otherwise pay in a single lump by 31 January. The full amount comes off your Self Assessment bill when you file — and because the flat rate ignores your personal allowance and your expenses, most subcontractors get a chunk of it back.
The deduction applies to the labour element of a payment, not necessarily the whole invoice. The cost of materials you actually bought for the job can be left out of the calculation, as long as the contractor is satisfied the figure is genuine.
That split changes what lands in your bank account. Bill £1,000 of labour plus £600 of materials as a registered subcontractor and the deduction is £200, not £320. Keep receipts for every materials purchase — the split is the number most often argued about, and it is worth real money on every job.
Some subcontractors are paid in full, with nothing deducted at all. Gross payment status removes CIS deductions entirely, but HMRC grants it only to businesses with a three-year trading history, turnover above set thresholds, and a clean compliance record on tax returns and payments.
Honest small print: registering halves the rate from 30% to 20%, but it does not stop the deductions. Only gross payment status does that, and most new subcontractors will not qualify straight away.
Read next: what HMRC's monthly CIS statements show you, why most subcontractors get a tax refund and how CIS fits with Making Tax Digital.
Track every CIS payment, materials split and deduction in one simple spreadsheet.
CIS Subcontractor Tax Tracker — £9