If you work in construction for a contractor, part of your pay disappears before it reaches your bank. That's the Construction Industry Scheme (CIS) — and understanding exactly what's deducted, and why, is the difference between an accurate refund and money left with HMRC.

What CIS actually is

CIS makes contractors deduct tax from the payments they make to subcontractors and pass it to HMRC. It isn't an extra tax — it's an advance payment towards your Income Tax and National Insurance, settled up when your tax for the year is calculated.

The three rates

  • 20% — the standard rate, if you're registered as a CIS subcontractor.
  • 30% — the higher rate, if you're not registered (or the contractor can't verify you). Registering is free and instantly saves you 10% of every labour payment.
  • Gross (0%) — no deductions at all, if HMRC grants you gross payment status. You need to pass turnover and compliance tests, and you pay all your tax through your return instead.

Materials are never deducted

Deductions apply to the labour element of your invoice only. Materials you paid for — timber, cable, fittings, plant you hired for the job — must be excluded before the percentage is applied. That's why your invoices should always split labour and materials clearly: an unsplit invoice can mean CIS deducted from money that was never labour at all.

Your CIS statement

For every month a contractor deducts from you (the tax month runs to the 5th), they must give you a payment and deduction statement showing your gross pay, the cost of materials and the amount deducted. Keep every one — they're the evidence for the deductions you reclaim. See how to get a CIS refund for how they're used.

Where the deductions go

At year end, everything deducted through CIS is set against the tax and Class 4 NI you actually owe on your profit. Because deductions were taken from gross labour — before your Personal Allowance and expenses — many subcontractors have overpaid and are due money back.

This article is general information for UK sole traders and subcontractors, not tax, accounting or financial advice. Rules change — check current HMRC guidance or speak to an accountant about your own position.