The Construction Industry Scheme (CIS) is a tax deduction system that applies to payments made by contractors to subcontractors in the construction industry. Under CIS, the contractor deducts 20% (or 30% for unregistered workers) from payments and sends it to HMRC as an advance payment of the subcontractor's tax. This guide explains how the scheme works in 26-27, how to register, and how to reclaim overpaid tax through Self-Assessment.[1]
How do CIS deductions work?
When a contractor pays a subcontractor for construction work, they must deduct a percentage from the payment (excluding materials costs) and send it to HMRC. The deduction rate depends on the subcontractor's registration status:
- Registered subcontractor: 20% deducted
- Unregistered subcontractor: 30% deducted
- Gross Payment Status: 0% deducted (paid gross)
These deductions are not an additional tax — they are advance payments towards your income tax and NI bill. When you file your Self-Assessment return at the end of the year, the total CIS deductions are offset against your actual liability. If you've had more deducted than you owe, you get a refund. If your actual liability is higher (perhaps because you also have other income), you pay the difference.
Deductions only apply to labour costs. Materials, plant hire, and equipment costs that the subcontractor has purchased should be excluded from the CIS calculation. The contractor must verify the subcontractor with HMRC before each payment to confirm the correct deduction rate.
How do I register for CIS as a subcontractor?
Registration as a CIS subcontractor is essential — it reduces your deduction rate from 30% to 20%. To register, you need:
- A Unique Taxpayer Reference (UTR) — obtained by registering for Self-Assessment
- Your National Insurance number
- Your legal business name and trading address
You can register online through your Government Gateway account or by calling HMRC's CIS helpline. Registration typically takes 2–3 weeks. Until registration is confirmed, contractors must deduct at the higher30% rate — so register before you start working if possible.
Gross Payment Status (receiving payments with no deductions) requires meeting additional criteria: a turnover threshold (£30,000 or more excluding materials and VAT), compliance with filing obligations, and no outstanding tax debts. It is reviewed annually.
How do I reclaim overpaid CIS deductions?
Most subcontractors are entitled to a refund because the flat 20% deduction rate is applied to gross income before expenses. Your actual tax liability (after claiming allowable expenses) is often lower than the total deducted. To reclaim:
- File a Self-Assessment tax return by 31 January following the end of the tax year (e.g., for 26-27, file by 31 January 2028).
- Enter your total CIS income and the total deductions made (shown on your CIS payment and deduction statements from contractors).
- Claim all allowable business expenses (tools, travel, materials you purchased, insurance, accountancy fees).
- The system calculates your actual liability (income tax at 20%/40% + Class 4 NI at 6%) and offsets CIS deductions against it.
Example: you receive £40,000 in CIS payments (after 20% deductions) and have £8,000 in expenses. Your taxable profit is £32,000. After the Personal Allowance of £12,579, your income tax is approximately £3,884. But the total CIS deducted was £10,000 — likely more than your actual liability, resulting in a refund.
What expenses can CIS subcontractors claim?
As a self-employed subcontractor, you can deduct legitimate business expenses from your income before tax is calculated. Common expenses for construction workers include:
- Tools and equipment — hand tools, power tools, PPE, workwear
- Travel to sites — mileage (45p/mile for first 10,000 miles), parking, tolls
- Materials — if you supply any materials not reimbursed by the contractor
- Insurance — public liability, professional indemnity
- Phone and communications — proportion used for business
- Accountancy fees — for preparing your return
- Training and certification — CSCS cards, first aid, trade courses
Keep receipts and records for at least 5 years. HMRC can enquire into your return and will need evidence for any expense claimed. Digital record-keeping (photos of receipts, spreadsheets) is acceptable.
What National Insurance do CIS subcontractors pay?
As a self-employed subcontractor, you pay:
- Class 2 NI: £3.45/week (approximately £179/year) if profits exceed the Small Profits Threshold
- Class 4 NI: 6% on profits between £12,570 and £50,270, then 2% above that
CIS deductions do not cover NI — they only count towards income tax. Your Class 4 NI is calculated separately on your Self-Assessment return and must be paid in addition to any tax owed (or it reduces your refund).[2]
How can I estimate my actual tax position?
Use the income tax calculator to model your expected tax liability based on your net profit (income minus expenses). This gives you an idea of whether your CIS deductions will exceed your liability (refund) or fall short (additional payment due). For self-employed NI calculations, see our gig economy tax guide which covers Class 2 and Class 4 NI in detail.
Sources
- HMRC — What is the Construction Industry Scheme. Deduction rates: 20% registered, 30% unregistered. Accessed July 2026.
- HMRC — Self-employed National Insurance rates. Class 4 rate 6% for 26-27. Accessed July 2026.
- HMRC — Income Tax rates and Personal Allowances. Personal Allowance £12,579, basic rate 20%. Accessed July 2026.