CIS for subcontractors: deductions, statements and getting your money back

The Construction Industry Scheme (CIS) is HMRC's way of collecting tax from construction work as it happens rather than waiting for a tax return. If you are a subcontractor, the contractor who pays you deducts a slice of your money and sends it to HMRC on your behalf, as an advance payment towards your Income Tax and National Insurance.

Run well, CIS is merely annoying: money arrives late in your hands but is credited to you at the year end. Run badly — unregistered, statements missing, materials not itemised — it quietly bleeds cash out of a business that is usually tight on cash already. This guide is about running it well.

The three deduction rates

• 20% — the standard rate, for subcontractors registered with HMRC for CIS.
• 30% — the punishment rate, for subcontractors who are not registered (or whose details cannot be matched when the contractor verifies them).
• 0% — gross payment status: you are paid in full and settle your own tax later.

If you take one action after reading this, make it registering for CIS. The gap between 30% and 20% is a tenth of your labour income, withheld for up to a year, for want of a phone call and a Unique Taxpayer Reference (UTR).

Deductions come off labour, not materials

Contractors deduct from the labour element of your invoice. Materials you paid for, plant you hired for the job, and VAT (if you charge it) are excluded from the calculation. This only works if your invoice shows the split — a single-line "£2,400 for the bathroom job" invites a deduction from the whole amount. Itemise labour and materials separately on every invoice, and keep the receipts that support the materials figure.

Payment and deduction statements: your proof

For every tax month in which a contractor deducts from you (tax months run from the 6th to the 5th), they must give you a payment and deduction statement within 14 days of the month end — in practice, by the 19th. These statements are your evidence that the money exists in HMRC's hands with your name on it.

Treat them like cash. Chase any that fail to arrive, in writing, while the job is still fresh. Keep your own parallel record of every payment received and the deduction taken from it, so that a missing statement is an inconvenience rather than a hole in your year.

Getting the money back

Sole traders and partners report their CIS deductions on their Self Assessment return. The deductions are set against the Income Tax and Class 4 National Insurance you owe; if more was deducted than you owe — common, because 20% comes off gross labour with no personal allowance and no expenses counted — HMRC refunds the difference. This is why many subcontractors file in April or May rather than January: the sooner you file, the sooner the refund.

Limited company subcontractors work differently. The company sets its CIS deductions against its PAYE, National Insurance and CIS liabilities month by month through its payroll reporting (an Employer Payment Summary), and reclaims any surplus from HMRC after the tax year ends. Do not try to claim company deductions through a personal return — it is a common and messy mistake.

Gross payment status

If cash flow is the problem, gross payment status is the cure: contractors pay you in full and you pay your own tax through your return. To qualify you must apply to HMRC and pass tests covering your compliance record (returns and payments up to date), your business (construction work, bank account in the business name) and your turnover, which must exceed thresholds set by HMRC — check the current figures on GOV.UK. HMRC reviews compliance annually, and lateness elsewhere in your tax affairs can cost you the status. For a growing subcontracting business it is usually worth the discipline.

Common problems, and what actually fixes them

• Deducted at 30% despite being registered. Usually a verification mismatch: the name or UTR the contractor holds does not exactly match HMRC's record. Give contractors precisely the details HMRC holds — trading name quirks cause real losses.
• Statements missing. Request them in writing; contractors are obliged to provide them. Meanwhile your own payment records and bank statements let your return be prepared accurately.
• Materials deducted as labour. Fix the invoice format going forward; for past over-deductions, the year-end reconciliation recovers the tax, though not the lost cash flow.
• Contractor deducted but seems not to have paid HMRC. Keep your statements and bank evidence and speak to HMRC — a subcontractor with proof of deduction is in a strong position; the debt is pursued from the contractor.
• Refund stuck. File early, make sure every deduction is supported by a statement, and check the return's CIS figure matches your own records to the pound.

Keep the records, keep the rhythm

A subcontractor's bookkeeping is not complicated, but it is relentless: invoices with labour/materials splits, deduction statements, materials receipts, mileage between sites. And from April 2026, sole-trader subcontractors with gross income over £50,000 fall into Making Tax Digital for Income Tax, which makes digital records and quarterly updates mandatory rather than merely sensible.

That rhythm is exactly what we automate. Statements and invoices go in as they arrive, every entry is drafted, checked and signed off — AI drafts. AgentLedger validates. People approve. — and your CIS position is visible all year instead of emerging as a surprise each spring. If you would like your CIS paperwork handled properly, Ask for Details.