The Construction Industry Scheme (CIS) is a tax scheme that applies to most construction work. Under CIS, contractors deduct tax from payments they make to their subcontractors. The contractor then reports these deductions and pays them to HMRC each month.
These deductions act as advance payments towards the subcontractor’s yearly tax and National Insurance bill. For this reason, CIS does not replace Self Assessment. Subcontractors will still need to submit a tax return at the end of the tax year.
Subcontractors Under CIS
Under CIS, a “subcontractor” is a business that carries out construction work for a contractor. You can still count as a subcontractor even if you operate in different ways.
CIS can still apply if:
- You hire employees to help complete work
- You use other subcontractors on the same contract
- You trade as a Sole Trader, Partnership or Limited Company
- You operate as an agency supplying workers to a contractor
Being a subcontractor does mean that you are an employee. Instead, the contractors acts as your client. The contractor must assess your employment status using HMRC’s Check Employment Status for Tax (CEST) tool. They cannot decide your status themselves.
How Much Tax Do Contractors Deduct?
The CIS deduction amount depends on your registration status. Contractors must verify you with HMRC before making any payments.
The standard deduction rates are:
| Deduction Amount | For Who |
|---|---|
| 20% | Registered Subcontractors |
| 30% | Unregistered Subcontractors |
| 0% | Subcontractors with Gross Payment Status |
These deductions apply only to the labour element of your invoice. They do not apply to materials or VAT. Therefore, clear invoices help contractors apply the correct deductions.
CIS and Self Assessment
CIS deductions do not take the Personal Allowance into account. This allowances lets you earn £12,570 each year before paying tax. Because contractors ignore this allowance, many subcontractors overpay tax during the year.
Subcontractors must still submit a Self Assessment tax return each year. HMRC the offsets CIS deductions against the final tax bill. If you paid too much tax, HMRC will issue you a refund.
CIS Registration for Subcontractors
CIS registration is not compulsory for subcontractors. However, most benefit from registering as soon as possible. Registration reduces the tax deduction from payments and helps contractors with verification.
You can register for CIS by:
- Applying online through HMRC
- Calling the CIS Helpline on 0300 200 3210
You will need your National Insurance number and Unique Taxpayer Reference (UTR). Limited companies must also provide company details. Some roles do not require registration, such as surveying and plant hire without labour.
Giving Information to Contractors
Before paying you, contractors must verify your details with HMRC. Your details must match exactly to HMRC’s records. Any mismatch can cause delays or lead to higher deductions.
The information you provide depends on how your business operates:
| Business | Information |
|---|---|
| Sole Traders | National Insurance Number Unique Taxpayer Reference (UTR) |
| Partnerships | Nominated Partner Details Trading Name Partnership UTR |
| Limited Companies | Company Name Registration Number Company UTR |
Non-CIS Contracts
Not all construction projects fall under CIS. Some situations sit outside the scheme. However, HMRC does not grant exemptions automatically. For this reason, you should always confirm whether CIS applies before assuming an exemption.
For example: CIS may not apply when the work value stays under £1,000 on your own property or if a charity pays for the work.
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This article is for general informational purposes only and does not constitute legal or financial advice. While we aim to keep our content up to date and accurate, UK tax laws and regulations are subject to change. Please speak to an accountant or tax professional for advice tailored to your individual circumstances. Pi Accountancy accepts no responsibility for any issues arising from reliance on the information provided.