How CIS Deductions Work
The Construction Industry Scheme (CIS) requires contractors to deduct money from payments to most subcontractors and pass it to HMRC in advance of the subcontractor's own tax bill. This guide explains what CIS is, who it applies to, and how the deduction works.
What CIS is
The Construction Industry Scheme (CIS) is a set of HMRC rules for the construction industry. Under CIS, a contractor deducts money from a payment to a subcontractor and pays that money to HMRC, as an advance payment towards the subcontractor's own Income Tax and National Insurance.
The subcontractor still declares the full amount earned, before the deduction, as their income. The CIS deduction already paid over by the contractor is then set against whatever the subcontractor actually owes for the year.
Who it applies to
CIS applies to contractors and subcontractors working in construction, including most building, civil engineering, and construction-related work in the UK.
- Contractor: a business that pays subcontractors for construction work, including businesses whose main activity is not construction but that spend heavily on it.
- Subcontractor: a business or self-employed individual doing construction work for a contractor.
- Some work is excluded from CIS, including architecture, surveying, scaffolding hire without labour, and delivering materials, so not every payment on a construction site falls under the scheme.
The deduction rates
A contractor must verify each subcontractor with HMRC before the first payment, which determines the deduction rate that applies.
| Subcontractor status | Deduction rate |
|---|---|
| Registered for CIS (net payment status) | 20% |
| Not registered for CIS | 30% |
| Gross payment status | 0% (no deduction) |
A subcontractor with gross payment status is paid in full, with no CIS deduction, and instead deals with their Income Tax and National Insurance entirely through their own Self Assessment return. Gross payment status has its own qualifying conditions and is not automatic.
How deductions are taken at source
The deduction is taken from the labour part of a subcontractor's payment only. Amounts the subcontractor is claiming back for materials they have genuinely bought and used on the job are not included in the deduction.
- Total invoice
- £1,000
- Materials (not deducted)
- £300
- Labour subject to deduction
- £700
- CIS deduction at 20%
- £140
- Amount paid to the subcontractor
- £860
The contractor pays the £140 deduction to HMRC and gives the subcontractor a statement showing the payment and the deduction, which the subcontractor keeps as a record for their own tax return.
Official sources
Key takeaways
- CIS requires a contractor to deduct money from a subcontractor's payment and pay it to HMRC in advance of the subcontractor's own tax bill.
- It applies to construction-industry contractors and subcontractors; some work is excluded.
- The deduction rate is 20% for CIS-registered subcontractors, 30% for unregistered subcontractors, or 0% for subcontractors with gross payment status.
- The deduction applies to the labour part of a payment only, not to genuine materials costs.
- The subcontractor sets the deduction already paid against what they owe through their own Self Assessment return.
Frequently asked questions
Is a CIS deduction the final tax a subcontractor pays?
Do all construction workers fall under CIS?
How does a subcontractor get gross payment status?
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This guide explains how CIS deductions work in general terms. It is not personal tax advice. CIS rules and rates are reviewed periodically; check current guidance for your situation.