You've finished the job, sent your invoice, and the payment comes in — but it's short. Not by accident. By design. If you work as a subcontractor in construction, this is the Construction Industry Scheme (CIS) in action. HMRC requires the contractor who pays you to hold back a percentage of your labour costs and send it on your behalf. It's not a penalty, and it's not gone forever — but if you don't understand how it works, it can quietly cost you thousands. Here's everything you need to know.
The Construction Industry Scheme is HMRC's way of collecting tax from self-employed workers in construction. Rather than waiting for subcontractors to pay their own tax bills at the end of the year, CIS requires contractors to deduct tax at source and pass it directly to HMRC.
The scheme applies to most construction work in the UK — building, demolition, repair, decorating, groundwork, roofing, plumbing, electrical work, and more. If you're working on a construction site and getting paid by a contractor, there's a very good chance CIS applies to you.
The rate deducted from your payments depends entirely on your registration status with HMRC. There are three possibilities:
0% — Gross Payment Status (GPS)You receive your full invoice amount with nothing held back. GPS is available to subcontractors who have a strong record of filing and paying tax on time, and who meet HMRC's turnover and compliance thresholds. It's the best position to be in — but you have to qualify for it and keep qualifying.
20% — Registered SubcontractorIf you're registered for CIS with HMRC, your contractor deducts 20% from the labour element of your invoice and sends it to HMRC. This is the standard rate for most subcontractors and the one you should be on if you're not eligible for GPS.
30% — Unregistered SubcontractorIf you're not registered with HMRC at all, the contractor has no choice but to deduct 30%. That's a significant chunk of your take-home pay — and the only reason to be here is if you haven't registered yet.
The message is simple: register for CIS if you haven't already. Moving from 30% to 20% is free, takes minutes, and saves you real money on every single payment.
This is where a lot of subcontractors get confused. CIS deductions only apply to the labour portion of your invoice — not materials.
If your invoice includes both labour and materials, only the labour element is subject to deduction. So if you invoice £2,000 for labour and £800 for materials, the deduction only applies to the £2,000. The contractor should verify the material cost separately and pay that in full.
This matters. Always be clear on your invoices about what is labour and what is materials. If it's all lumped together, you could end up with a bigger deduction than you're entitled to.
This is the most important thing to understand about CIS deductions: they're not a tax in their own right. Every pound deducted under CIS is an advance payment towards your Self Assessment tax liability.
When you file your tax return at the end of the year, you declare your total gross income and then claim back all the CIS deductions that were made. If more was deducted than you owe in tax, HMRC refunds the difference.
For sole traders, this comes back through Self Assessment. For limited company subcontractors, the process is slightly different — you offset CIS deductions against your employer PAYE liabilities.
This is why keeping your CIS deduction statements is so important. Your contractor is required to give you a payment and deduction statement within 14 days of the end of each tax month. These are your proof of what was taken and what you can reclaim — don't lose them.
If you're losing 20% of your labour income to CIS every month, GPS is worth understanding. With gross payment status, nothing is deducted — you receive your full payment and manage your own tax affairs.
To qualify, HMRC looks at three things: your tax compliance record (filing returns and paying tax on time), your business turnover (there are minimum thresholds), and whether your business is genuinely trading in construction.
The catch is that GPS isn't set-and-forget. HMRC reviews it regularly, and from April 2026 they have stronger powers to cancel GPS immediately where they believe a business is connected to tax fraud in the supply chain. For businesses with a clean compliance record this shouldn't be a concern — but it does underline the importance of keeping your tax affairs in order if you hold GPS.
A package of CIS changes came into effect at the start of the 2026/27 tax year. The headline for subcontractors: the deduction rates haven't changed. You're still looking at 0%, 20%, or 30% depending on your status.
What has changed affects contractors more than subcontractors — including new nil return requirements — but there are a couple of things worth being aware of:
Stricter GPS scrutiny. HMRC is actively reviewing gross payment status holders and will cancel it more readily where compliance issues are found. If you hold GPS, stay on top of your filing and payment obligations.
Stronger fraud enforcement. HMRC now has formal powers to act immediately against GPS holders where suspected fraud in the supply chain is identified. For legitimate, compliant subcontractors this is a protection, not a threat.
Digital records becoming the norm. Many self-employed subcontractors are moving to digital tax reporting, with quarterly updates replacing the traditional annual return cycle. If you haven't already, it's worth getting your record-keeping in order now.
Not registering for CIS. Taking 30% deductions when you could be on 20% is a straightforward loss. Register with HMRC and get it sorted.
Not separating labour and materials on invoices. If everything is lumped together, contractors may deduct on the full amount. Break it out clearly.
Losing deduction statements. You need these to reclaim your money at year end. Keep every one.
Not filing a Self Assessment return. CIS deductions build up as a credit throughout the year, but you only get the money back if you actually file a return and claim it. Many subcontractors leave refunds sitting unclaimed simply because they don't get around to filing.
Assuming your contractor always gets it right. Mistakes happen. Check your deduction statements when they arrive and query anything that doesn't look right.
CIS is one of the areas where getting expert support pays for itself quickly. Whether you want to understand your current deductions, explore whether you qualify for gross payment status, or simply make sure you're getting everything back that you're owed at year end, our team is here to help.
We process over 150,000 payslips a year and have been working with construction subcontractors and contractors since 2016. We know CIS inside out — and we know how to make sure it's working for you, not against you.
Get in touch with the Riddingtons team today.
📞 01322 665913
📧 hello@riddingtonspayroll.co.uk
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