CIS Explained

What is the Construction Industry Scheme?

Under CIS, contractors must deduct a percentage of tax from payments made to subcontractors and pass it directly to HMRC. This means that as a subcontractor, you receive payments with tax already deducted — similar to PAYE for employees, but applied to self-employed construction workers.

CIS covers most construction work including building, decorating, plumbing, electrical work, demolition, and civil engineering. It does not cover architecture, surveying, or the manufacture of building materials.

Deduction Rates

The rate of CIS deduction depends on your registration status with HMRC:

Deductions are taken from your labour charges only — the cost of materials you provide is not subject to CIS deductions, provided they are clearly itemised on your invoice.

How CIS Affects Your Tax

CIS deductions are not an additional tax. They are advance payments of the income tax and National Insurance you would owe anyway. When you file your tax return (or MTD Final Declaration), the total CIS deducted during the year is offset against your tax bill.

In many cases — particularly if you have significant allowable expenses — the CIS already deducted will exceed your actual tax liability, resulting in a refund from HMRC.

Tracking CIS Deductions

Accurate record-keeping is essential. For every payment you receive under CIS, you should record:

• The gross amount (the full value of your work before deductions)
• The CIS deduction amount (the tax withheld by your contractor)
• The net amount received (what actually hits your bank account)
• The contractor name and their CIS reference

Your contractor is required to give you a written deduction statement for each payment. Keep these — they are your proof of tax already paid.

Claiming Your CIS Refund

You claim back overpaid CIS through your tax return or MTD Final Declaration. The process is:

1. Add up all CIS deductions for the tax year from your deduction statements
2. Calculate your actual tax liability based on your profit
3. The difference between CIS deducted and tax owed is either a refund (if CIS exceeds your liability) or additional tax to pay (if it does not)

HMRC typically processes refunds within 4 to 8 weeks after your return is filed.