If you work in construction in the UK and you invoice another contractor, a chunk of your money disappears before it reaches your bank. That's CIS. Here's what's happening, and how to make sure you're not losing money you should be keeping.
What CIS actually is
The Construction Industry Scheme is HMRC's way of collecting tax from subcontractors before they get the chance to spend it. Instead of you paying your tax bill at the end of the year, the contractor paying you takes a slice off every invoice and sends it to HMRC on your behalf.
It isn't an extra tax. It's your income tax, paid in advance. If too much comes off over the year, you get it back. The problem is that "getting it back" is a paperwork job, and plenty of lads never do it properly.
The three rates
| Rate | Who gets it |
|---|---|
| 0% | Subcontractors with gross payment status. You get paid in full and settle up with HMRC yourself. |
| 20% | The standard rate. You're registered for CIS and the contractor has verified you with HMRC. |
| 30% | You're not registered, or HMRC can't match your details when the contractor verifies you. |
That gap between 20% and 30% is the easiest money you'll ever save. If you're not registered for CIS, register. If you are registered and you're still getting 30% taken off, your details don't match what HMRC holds, usually the name or the UTR. Sort that out and you're 10% better off on every invoice until you get the rest back at year end.
The bit most people get wrong: it only comes off labour
The deduction applies to the labour element only. Not materials. Not VAT. Not the whole invoice.
Here's a £3,000 job done by a 20% subcontractor:
| Labour | £2,000 |
| Materials | £1,000 |
| Invoice total (before VAT) | £3,000 |
| CIS deduction (20% of the £2,000 labour) | (£400) |
| Paid to you | £2,600 |
If that contractor had taken 20% off the full £3,000, they'd have deducted £600 and you'd be £200 light. It happens, and it's usually a mistake rather than anything dodgy. That's why your invoice needs to split labour and materials clearly. Don't make somebody's accounts clerk guess, because the guess won't go your way.
Materials means what you actually paid for materials, plant hire and fuel bought for the job. You can't inflate it to dodge the deduction. And if you're VAT registered, the deduction is worked out on the net figure, never including VAT.
What you should get with your payment
Every month a contractor deducts from you, they must give you a payment and deduction statement within 14 days of the end of the tax month. It shows their name and employer reference, your name and UTR, the tax month, the gross payment, the materials, the deduction and the net paid.
Those statements are your proof. Without them you're relying on your own records to claim money back. Keep every one, in a folder, in date order. If a contractor doesn't send them, ask. They're legally required to.
How you get the money back
This is where the two setups differ, and it matters:
- Sole trader or partnership: the deductions go on your Self Assessment return. They're offset against your income tax and Class 4 National Insurance. If more has been deducted than you owe, HMRC refunds the difference.
- Limited company: you offset CIS suffered against your monthly PAYE and NIC bill, reported through an EPS. If you've suffered more than you owe by the end of the tax year, you claim the balance back.
Either way, this only works if your records are straight. If you don't know exactly how much has been deducted from you this year, you're guessing at a number that belongs to you.
If you're the one deducting
Paying subbies puts you on the other side of it. Then you need to:
- Verify every subcontractor with HMRC before the first payment. This tells you which rate to use. Don't assume 20%, because if they're not registered it's 30% and the shortfall is your problem.
- Deduct at the right rate, on labour only.
- File a monthly CIS return by the 19th, and pay HMRC what you've deducted.
- Issue each subbie their statement.
- Keep the lot for at least three years.
Miss a monthly return and the penalty starts at £100, even if the return is nil. It climbs from there.
The short version
- CIS is your tax paid early, not an extra tax.
- Register, or you'll lose 30% instead of 20%.
- It comes off labour only, so split labour and materials on every invoice.
- Keep every payment and deduction statement.
- Claim it back properly, through Self Assessment or against your PAYE bill.
This is a plain-English explainer, not tax advice. Rates and rules change, and your situation might not be the standard one. Check with your accountant, and check HMRC's own guidance at gov.uk before you file anything.