CIS Subcontractor Tax Guide: 20% Deductions, Year-End Refunds, and Self Assessment
The Construction Industry Scheme (CIS) is a system where contractors in the building trade deduct tax from payments made to subcontractors and pass it directly to HMRC. The standard deduction rate is 20% for registered subcontractors and 30% for those who are not registered. These deductions are not a separate tax. They are advance payments of the Income Tax and National Insurance you owe for the year. Most CIS subcontractors end up overpaying through deductions and are entitled to a refund when they file their Self Assessment return.
How CIS deductions work
When a contractor pays a subcontractor for construction work, the contractor must:
- Verify the subcontractor with HMRC (online or by phone).
- Deduct tax at the appropriate rate from the labour element of the payment (materials are excluded).
- Pay the deducted tax to HMRC on behalf of the subcontractor.
- Provide the subcontractor with a written statement (CIS payment and deduction statement) showing the gross amount, deduction, and net payment.
The deduction applies only to the labour portion of invoices. If a subcontractor invoices £5,000 for labour and £2,000 for materials, the 20% deduction applies to the £5,000 labour element only: £1,000 deducted, £4,000 paid net, plus the full £2,000 for materials.
Deduction rates
| Registration Status | Deduction Rate | Who Qualifies |
|---|---|---|
| Registered | 20% | Subcontractors who have registered with HMRC for CIS |
| Not registered | 30% | Subcontractors who have not registered |
| Gross payment status | 0% | Established subcontractors who meet strict turnover and compliance tests |
Registering for CIS is free and straightforward. You can do it through the HMRC CIS helpline (0300 200 3210) or through your Government Gateway account. There is no reason not to register: the difference between 20% and 30% deductions is significant.
Gross payment status
Experienced subcontractors can apply for gross payment status, which means no deductions are made. To qualify, you must meet three tests:
- Business test: You must operate in the construction industry in the UK and provide construction services.
- Turnover test: Your annual construction turnover must exceed £30,000 (as a sole trader). For partnerships, the threshold is £30,000 per partner or £200,000 for the partnership as a whole.
- Compliance test: You must have a clean record of filing tax returns on time and paying tax by the due date for the previous 12 months. Late payments, late filings, or outstanding HMRC debts will cause an application to fail.
HMRC reviews gross payment status annually. If you fail any test at review, your status is withdrawn and you revert to 20% deductions.
What counts as construction work under CIS?
CIS covers a broad range of construction activities:
- Building, altering, or extending structures (houses, offices, roads, bridges)
- Demolition and dismantling
- Installing heating, lighting, plumbing, electrical, ventilation systems
- Painting and decorating
- Site preparation, excavation, and landscaping connected to construction
CIS does not cover architecture, surveying, or professional consulting services. It also does not apply to manufacturing or delivering materials without installation. If you are unsure whether your work falls under CIS, check HMRC's detailed guidance or call the CIS helpline.
Year-end: why most subcontractors get a refund
The 20% CIS deduction is applied to gross labour payments. But your actual tax liability is calculated on your net profit (gross income minus allowable expenses). Most subcontractors have expenses that significantly reduce their taxable profit below their gross payments.
Here is a worked example for a subcontractor with £50,000 gross payments and £12,000 in allowable expenses:
CIS deducted during the year: £50,000 x 20% = £10,000
Net profit: £50,000 - £12,000 = £38,000
Income Tax on £38,000: (£38,000 - £12,570) x 20% = £5,086
Class 2 NI: £182
Class 4 NI: (£38,000 - £12,570) x 6% = £1,525.80
Total actual tax liability: £5,086 + £182 + £1,525.80 = £6,793.80
Refund due: £10,000 - £6,793.80 = £3,206.20
In this example, the subcontractor gets back over £3,200 because the 20% deduction on gross payments exceeded the actual tax owed on net profit. This is extremely common in the construction industry.
See the full self-employed tax breakdown for £38,000 profit.
How to claim your CIS refund
You claim your CIS deductions back through your Self Assessment tax return. On the self-employment section of the return, you enter the total CIS deductions shown on your CIS payment and deduction statements. HMRC subtracts these from your total tax bill. If the deductions exceed your liability, the difference is refunded to you.
Keep all your CIS payment and deduction statements. HMRC can verify the amounts against the contractor's monthly CIS returns, but having the statements yourself avoids delays. If a contractor has not given you a statement, request one in writing. They are legally required to provide it.
Common CIS expenses you can claim
As a self-employed subcontractor, you can deduct any expense incurred wholly and exclusively for your business. Typical CIS expenses include:
- Tools and equipment (up to £1 million under Annual Investment Allowance)
- Van or vehicle costs (fuel, insurance, maintenance for business use)
- Protective clothing and safety equipment (hard hats, steel-capped boots, high-vis jackets)
- Travel to temporary worksites (not a permanent workplace)
- Phone and communication costs (business proportion)
- Public liability insurance and professional indemnity insurance
- Accountancy fees for preparing your tax return
Self Assessment timeline for CIS subcontractors
The key dates for a CIS subcontractor for the 2025-26 tax year are:
| Date | Action |
|---|---|
| 5 April 2026 | End of the 2025-26 tax year. Gather all CIS statements and expense records. |
| 6 April to 31 January | File your Self Assessment return online (paper deadline: 31 October 2026). |
| 31 January 2027 | Online filing deadline. Pay any balance owed, or HMRC processes your refund. |
Filing early does not mean you pay earlier. The payment deadline is always 31 January. But filing early means HMRC processes your refund sooner. If you file in May or June, you could receive your refund within weeks rather than waiting until the following January.
CIS and limited companies
If you operate through a limited company, CIS deductions are handled differently. The company can offset CIS deductions against its employer PAYE and NI liabilities. If the deductions exceed the company's PAYE obligations, the company can claim a refund from HMRC. This is a separate process from personal Self Assessment and is handled through the company's Real Time Information (RTI) submissions.
Frequently asked questions
What if my contractor did not give me a CIS statement?
Request it in writing. Contractors are legally obligated to provide a written statement within 14 days of making a CIS deduction. If they refuse, report them to the HMRC CIS helpline. You can still claim the deduction on your Self Assessment if you have other evidence (bank statements, invoices) showing the payment and deduction, but HMRC may query it without the official statement.
Can I register for CIS and be employed at the same time?
Yes. Many construction workers are employed on some projects and self-employed on others. Your CIS registration covers your self-employment work only. Your employment income is taxed through PAYE as normal. Both sources of income are combined on your Self Assessment return. Use our second job calculator for combined scenarios.
My contractor deducted 30% because I was not registered. Can I get the extra 10% back?
Yes. The 30% deduction for unregistered subcontractors is simply a higher advance payment of tax. When you file your Self Assessment, HMRC credits the full 30% deductions against your actual liability. If you have overpaid (which is very likely at 30%), the excess is refunded. Register for CIS as soon as possible to reduce future deductions to 20%.
Do materials count toward the CIS deduction?
No. CIS deductions apply only to the labour element of an invoice. If you supply materials as part of a job, these must be separately itemised on your invoice and excluded from the deduction calculation. If your contractor deducts from the total (including materials), contact them to correct it. The labour/materials split should be clear on both the invoice and the CIS statement.
Is CIS being replaced by any new system?
HMRC has not announced any plans to abolish CIS. Making Tax Digital for Income Tax (starting April 2026 for those with income over £50,000) will affect how self-employed subcontractors report their income (quarterly digital submissions rather than an annual return), but the CIS deduction mechanism itself is expected to continue alongside MTD. Keep your records digitally ready for MTD compliance if your construction income exceeds the threshold.