If you’re self-employed in the building or construction trade, there’s a good chance you’re affected by the Construction Industry Scheme (CIS).
Under CIS, contractors deduct tax from payments they make to you and send it to HMRC. Those deductions are then offset against your Income Tax and National Insurance liability when you complete your Self Assessment tax return.
This guide explains:
- Who CIS applies to
- How CIS registration works for contractors and subcontractors
- Why some subcontractors are deducted at 20% and others at 30%
- How gross payment status works
- How CIS ties into VAT, Self Assessment and employment rights
1. CIS Basics – how it works
The Construction Industry Scheme is a set of HMRC rules for people working in construction who are not employees of the contractor – typically self-employed sole traders or businesses.
Key features:
- If you’re a subcontractor, the contractor normally deducts tax from your labour payments at:
- 20% if you’re registered for CIS, or
- 30% if you are not registered / cannot be verified.
- These deductions are not your final tax bill – they’re advance payments off your eventual Income Tax and Class 4 NIC.
- This is very different from most other self-employed people outside construction, who are usually paid gross (no tax taken off at source) and pay all their tax via Self Assessment.
Importantly, even if you get regular statements showing deductions (similar to payslips), you’re still being treated as self-employed for tax, you do not automatically get employee rights such as holiday pay or sick pay.
What counts as “construction”?
CIS covers more than just traditional building work. It usually includes:
- Construction, alteration and extension
- Demolition and dismantling
- Site preparation and clearance
- Repairs and decorating
- Installing power, lighting, heating or water systems
- Some traffic management work connected to construction sites
However, if you provide services directly to a homeowner (not through a contractor), those jobs do not fall under CIS – the customer pays you in full, and you handle your own tax through Self Assessment.
2. Are you really self-employed? (Scope of Construction Industry Scheme CIS)
You should only be in CIS if you are genuinely self-employed.
Not everyone who works on a building site is self-employed. A contractor must decide your employment status correctly. In many cases:
- If you work exclusively for one contractor,
- Have little or no financial risk, and
- Are effectively under their control day-to-day,
then you may actually be an employee, not self-employed, even if:
- The job is short term
- You already have a UTR
- You provide your own small tools
If you are an employee, the contractor must deduct tax and National Insurance using PAYE, and you must get proper payslips each payday. If you’re then told to join an umbrella company or another intermediary, different rules may apply and specialist advice is sensible.
Employment status is a question of fact, not choice. You can’t simply “opt” to be self-employed if the working reality says otherwise.
3. Registering with HMRC for CIS
Both contractors and subcontractors need to consider whether they must register with HMRC under CIS.
You can even be both at the same time.
Example – being both a contractor and a subcontractor
Imagine an electrician, Dennis, who is hired by a local builder to wire a new extension. For that job, Dennis is a subcontractor and is paid under CIS.
If Dennis then brings in another self-employed electrician, Jenny, to help him finish the job more quickly, Dennis is now also acting as a contractor and must operate CIS on his payments to Jenny.
CIS for contractors
You’re a contractor if you engage other self-employed workers to do construction work for you. In that case, you must:
- Register with HMRC as a CIS contractor
- Verify subcontractors and apply the correct deduction rate
- Make CIS returns and pay the deductions over to HMRC
HMRC explains how to register as a contractor and what you must do on GOV.UK.
CIS for subcontractors
Most individuals in CIS are subcontractors – taken on by a contractor to carry out specific tasks on a project.
As a subcontractor you can:
- Choose whether or not to register with CIS (though not registering usually means 30% deductions, so registration is almost always beneficial).
HMRC provides different registration routes depending on whether:
- You’ve already registered as self-employed
- You trade as a sole trader, partnership or limited company
Important: CIS registration is in addition to registering as self-employed for Self Assessment. New subcontractors often need to complete two registrations – but both can be done together.
4. CIS tax at 20% – when you’re registered
If you’re registered as a subcontractor under CIS, the contractor must normally deduct 20% from your labour payments.
If your invoice includes direct costs you’ve incurred – like materials or tool hire – then, provided they are listed separately and correctly, CIS shouldn’t be taken off those amounts; you should be paid 100% of those costs.
(If you’re VAT-registered, see the VAT section below.)
Self-billing in construction
In construction it’s common for contractors to operate self-billing:
- Instead of you issuing an invoice, the contractor prepares a document (a “self-billing invoice”) showing what they think is due, and sends it to you with payment.
You should always check self-billing documents to ensure:
- The days, rates and totals match your own records
- Materials and other “no-CIS” items are shown correctly
- The CIS deduction is what you expect
What happens to the 20%?
The 20% the contractor deducts is paid over to HMRC and treated as an advance payment towards:
- Your eventual Income Tax, and
- Your Class 4 National Insurance
for that tax year, as worked out on your Self Assessment return.
You still receive:
- 80% of your labour invoice value, plus
- 100% of your allowable materials and other reimbursed costs
into your bank account.
5. CIS tax at 30% – when you’re not registered
If you do not register under CIS (or the contractor can’t verify you correctly), they must deduct tax at 30% from the labour part of your invoice. Materials and similar direct costs should still be paid in full where invoiced properly.
Example – 20% vs 30% CIS
A company, Builders Ltd, engages:
- Andrei – a self-employed bricklayer (not CIS-registered)
- Jan – a self-employed plasterer (CIS-registered)
Both are paid at £200 per day and each works 20 days in the month.
- Each invoices for £4,000 (20 days × £200).
- Jan also invoices £200 of materials, so his total invoice is £4,200.
Andrei (not CIS-registered):
- CIS deduction: 30% of £4,000 = £1,200
- Payment to Andrei: £4,000 – £1,200 = £2,800
- £1,200 is paid to HMRC as an advance against Andrei’s tax/NIC, not as a final bill.
Jan (CIS-registered):
- CIS deduction: 20% of £4,000 labour = £800
- Payment to Jan: £4,000 – £800 + £200 materials = £3,400
- £800 is paid to HMRC on Jan’s account.
So, registering for CIS means the contractor only withholds 20%, not 30%, improving your cash flow and usually reducing overpayments.
6. Gross payment status – being paid without deductions
If you’re registered for CIS and your tax affairs are up to date, you can apply to HMRC for gross payment status.
If granted:
- Contractors pay you in full with no CIS deductions
- You then pay the right amount of tax and NIC directly via Self Assessment (if you’re a sole trader/partnership) or via the company’s returns and PAYE if you trade through a limited company.
HMRC sets conditions for gross status – for example:
- Timely filing and payment of returns
- Sufficient business turnover
- Good compliance history
These conditions were tightened from 6 April 2024, and from 6 April 2026 HMRC will have stronger powers to remove gross payment status immediately where they believe a business knew or should have known it was part of a tax-fraudulent supply chain.
You can normally apply for gross payment status when first registering as a CIS subcontractor.
7. CIS and Self Assessment – how it all ties together
To operate CIS correctly, contractors must verify you with HMRC. They’ll usually need your:
- Unique Taxpayer Reference (UTR)
- National Insurance number
If you’re self-employed and paid under CIS, you’ll almost always need to:
- Complete a Self Assessment tax return each year
- Include your gross self-employment income – i.e. the full value of what you invoiced, not the net you received after CIS deductions
- Deduct your allowable business expenses (including materials, tool hire etc.) to arrive at your taxable profit
- Enter the total CIS tax deducted in the relevant box on the self-employment pages (short or full) so HMRC can offset it against your tax and NIC.
Example – setting off CIS against your tax bill
Moira is a painter and decorator in England. She is:
- Self-employed
- Registered for CIS
- Not on gross payment status
- Not earning any other taxable income
For the 2024/25 tax year she invoices:
- Labour: £18,000
- Materials: £2,500
- Tool hire: £800
All invoices are paid in 2024/25.
Her contractor deducts 20% CIS on her labour:
- CIS withheld: 20% of £18,000 = £3,600
- Cash paid for labour: £18,000 – £3,600 = £14,400
- Materials and tool hire (£3,300) are paid in full.
Moira also has other business expenses of £3,000.
On her Self Assessment tax return (for 2024/25), Moira shows:
- Turnover (total business income):
£18,000 + £2,500 + £800 = £21,300 - Total allowable expenses:
£3,000 (other expenses) + £2,500 (materials) + £800 (tool hire) = £6,300 - Net profit:
£21,300 – £6,300 = £15,000 - CIS tax deducted:
£3,600
HMRC then automatically calculates her:
- Income Tax on profits above the personal allowance
- Class 4 NIC on profits above the relevant thresholds
- Less the £3,600 CIS already deducted
Because CIS is taken off gross sales, without considering her expenses or personal allowance, Moira has overpaid via CIS and is due a refund – a very common position for CIS sole traders.
HMRC provides specific guidance on how to claim CIS tax refunds, especially where large overpayments arise.
8. Scotland & Wales – devolved income tax
Scotland and Wales have some devolved powers over income tax, so the rates and bands on your final Self Assessment calculation may differ from those in England.
However:
- CIS deductions at 20% or 30% are currently applied using UK rates,
- Your final tax position (and any refund or extra liability) is then sorted out when your Self Assessment return is processed. shapepayroll.com+1
If you’re unsure how Scottish or Welsh rates affect you, it’s worth getting tailored advice.
9. CIS payment & deduction statements (PDS)
Under CIS rules, a contractor must give you at least one “payment and deduction statement” for each tax month – sometimes called a PDS.
- A tax month runs from 6th of one month to 5th of the next (for example, 6 May to 5 June).
- The contractor must issue the statement within 14 days of the end of the tax month.
Each statement should show:
- The contractor’s name
- Your details
- Dates and amounts of payments made
- Any materials or other costs included
- The CIS deduction made from each payment
You must keep these statements (plus your own records and receipts) to:
- Complete your Self Assessment return accurately
- Evidence any refund claims
- Protect yourself against penalties for poor record-keeping or late/incorrect returns.
Lost or missing statements
If you’re missing statements:
- Ask the contractor first – they are legally obliged to provide them.
- If that fails and you’ve genuinely tried, you can write to HMRC at:
PT Operations
HM Revenue and Customs
BX9 1BX
United Kingdom
HMRC no longer provides this information over the CIS helpline; written requests are now the route for missing PDS data.
- As a last resort, you may be able to reconstruct figures from bank statements.
- For example, if you know you’re a CIS-registered labour-only subcontractor and you receive a payment of £260, that’s 80% (after 20% CIS).
- Gross amount = £260 × 100 / 80 = £325
- CIS deducted = £325 – £260 = £65
10. Limited companies and CIS
Some people are advised to trade through a limited company to “save tax”. However:
- A company is a separate legal entity, with more paperwork and costs.
- For lower-profit trades, the extra admin can outweigh any tax benefit.
- If you work mainly for one contractor, you may also fall under the IR35 / off-payroll working rules, which complicates things further.
If you trade through a limited company:
- CIS still applies – the company can be a CIS subcontractor (and/or contractor).
- CIS deducted from the company’s income can usually be offset against the company’s PAYE/NIC or CIS liabilities, and then against corporation tax.
Because company + CIS + possible off-payroll rules is a complicated mix, professional advice is highly recommended.
11. CIS and VAT (including the domestic reverse charge)
If you’re VAT registered, CIS deductions are not made on the VAT element of your invoice.
Example – VAT-registered subcontractor
Bill is a VAT-registered self-employed builder working as a subcontractor under CIS for Wilfred Homes Ltd.
He invoices:
- Labour: £20,000
- Materials: £5,000
- VAT @ 20%: £5,000
- Total invoice: £30,000
Wilfred Homes must:
- Apply CIS at 20% to the labour only:
- 20% of £20,000 = £4,000
- Pay Bill:
- £20,000 – £4,000 (labour net of CIS)
- £5,000 materials
- £5,000 VAT
= £26,000
So Bill receives £26,000 and has £4,000 CIS credited to his HMRC record.
VAT domestic reverse charge for construction
Since 1 March 2021, many B2B construction supplies between VAT-registered, CIS-registered businesses are subject to the domestic reverse charge. In those cases:
- Subcontractors do not charge VAT on their invoice;
- The contractor accounts for the VAT instead under reverse charge rules.
VAT is a complex area. Any perceived “benefits” of registering can be wiped out by extra admin, fees or penalties for mistakes, so voluntary VAT registration should be considered carefully.
12. Employment rights under CIS
Tax law only recognises two statuses:
- Employed
- Self-employed
Employment law, however, has three:
- Employee
- Worker
- Self-employed
Many people paid under CIS are treated as self-employed for tax, which normally means:
- No right to holiday pay
- No statutory sick pay
- Very limited protection from unfair dismissal
However, some individuals are incorrectly classed as self-employed when they should be employees, and others might be workers for employment law purposes even if they’re correctly treated as self-employed for tax.
If you’re unsure, it’s worth reviewing your employment status and associated rights.
Need help with CIS, refunds or gross payment status?
Navigating the Construction Industry Scheme can be a headache, especially if you’re juggling Self Assessment, VAT, PAYE and cash flow at the same time. At Accounting People, we help tradespeople, subcontractors, contractors and construction companies get CIS right from day one: registration, verification, refund claims, gross payment status applications and HMRC enquiries. If you’d like clear, no-jargon advice and ongoing support from specialists who understand the construction industry, we’re ready to help.
