CIS Tax Deductions Explained: Rates, Statements, and Reclaims

CIS tax deductions are amounts contractors withhold from payments to subcontractors under the Construction Industry Scheme and send to HMRC as an advance on the subcontractor’s income tax and National Insurance. The standard rate is 20% for registered subcontractors and 30% for those who haven’t registered.¹ Most subcontractors have more withheld across the year than they actually owe, and the annual tax return is where that money comes back.

The Three Deduction Rates

Before paying you for the first time, a contractor verifies you through HMRC’s online service. HMRC then tells the contractor which rate to apply.²

20% for subcontractors registered with CIS. This is what most people encounter.
30% for subcontractors who haven’t registered.
0% for those with gross payment status, meaning nothing is withheld at all.

Registering is free, and moving from 30% to 20% is the fastest way to stop overpaying at source.

What the Rate Actually Applies To

Contractors do not withhold from your whole invoice. They first strip out the cost of materials you supplied and any VAT, then apply the percentage to what’s left. Equipment hired from a third party counts as materials for this calculation, along with consumables like fuel for that hired equipment. Equipment you already own does not; there’s no notional cost you can carve out.³

One thing that catches subcontractors out: travel and subsistence are not excluded before the deduction is calculated. Anything you’re paid for travel or meals sits inside the gross figure and gets deducted from at the full rate.³ You can still claim travel as a business expense on your tax return, but the contractor cannot pull it out at the payment stage.

Registering as a Subcontractor

Registration takes you from the 30% rate to 20%. You can do it online, and you’ll need your business name, your Unique Taxpayer Reference, your National Insurance number, and the date you started trading.⁴ If you don’t have a UTR yet, registering for Self-Assessment as a new business and selecting “working as a subcontractor” sets you up for both at once.

Limited companies register with their Company Registration Number, partnerships with their partnership details. Subcontractors based abroad who do construction work in the UK also need to register.⁴

Gross Payment Status

Gross payment status stops CIS withholding entirely, so you receive full invoice value and settle the whole tax bill at year end. It requires passing two tests.

The compliance test looks back over the 12 months before your application. You need to have filed all Self-Assessment returns, CIS monthly returns, and VAT returns on time, and paid all PAYE, National Insurance, VAT, and CIS liabilities by their due dates. HMRC allows some slack: up to three late monthly returns (within 28 days), up to three late payments of £100 or more (within 14 days), and any late payment under £100 is disregarded.⁵

The turnover test for a company requires net construction turnover of at least £30,000 per director over the same 12 months. If you don’t hit that, an alternative test looks for £100,000 of total net turnover from all sources.⁵ Sole traders and partnerships face similar turnover thresholds. HMRC reviews the status annually and can withdraw it if compliance slips.

Payment and Deduction Statements

Every time a contractor pays you with CIS deductions, they must give you a payment and deduction statement showing the gross amount (excluding VAT), the materials cost deducted, the amount subject to withholding, the deduction taken, your UTR, and the contractor’s employer tax reference.⁶

Keep every one. They are your evidence that tax has already been paid on your behalf, and you’ll need the totals when you file. If a statement goes missing, ask the contractor for a replacement or check your HMRC online account. Keep your expense receipts alongside them, sorted by category: materials, tools, travel, insurance, vehicle costs, and anything else you plan to claim.

Reclaiming as a Sole Trader

If you’re self-employed, CIS deductions are reclaimed through your Self-Assessment return. Log in to HMRC’s online service, complete the self-employment pages with your total income and business expenses, and enter the total CIS deductions withheld during the tax year. HMRC compares what contractors have already paid on your behalf against your actual tax and National Insurance liability.

If more was withheld than you owe, HMRC issues a refund. For online returns filed correctly, this typically takes a few weeks, though queries on the return can slow it down. The online filing deadline is 31 January after the tax year ends, and any balance you still owe is due on the same date.⁷

Reclaiming as a Limited Company

Limited company subcontractors don’t use Self-Assessment for this. Instead, CIS deductions taken from the company are offset against its PAYE and National Insurance bill as an employer. If the deductions exceed what the company owes through PAYE, or if there are no employees at all, the company can claim a refund directly from HMRC.⁸

To claim, you’ll need the PAYE reference, the company UTR, and an estimate of the overpayment. You can ask HMRC to apply the refund against other liabilities such as Corporation Tax or VAT. Claims can be made online through the Government Gateway or by post to HMRC’s PT Operations team, and all relevant PAYE, CIS, and Corporation Tax returns must be submitted before HMRC will process the claim.⁸

Expenses That Reduce Your Final Bill

CIS deductions are collected against your labour income, but your final tax bill depends on taxable profit after expenses. Claiming everything legitimate is often the difference between a small balance and a refund.

Tools and equipment: purchases, leasing, and repairs.
Protective clothing and safety gear: work boots, hard hats, hi-vis, and similar items.
Travel to temporary worksites: fuel, public transport, parking, and mileage at HMRC’s approved rates. Travel to a permanent workplace doesn’t qualify.
Vehicle running costs: insurance, road tax, repairs, and fuel, apportioned if there’s personal use.
Insurance: public liability and professional indemnity.
Phone and internet: the business-use portion.
Accountancy fees for preparing your return.
Training courses that update or maintain skills for your current trade.

Materials you supply on a specific job have already been excluded before withholding, so they don’t come in again as a separate expense claim. Materials you buy that aren’t invoiced through to a contractor still reduce your taxable profit through the return.

Deadlines and Penalties

Missing the 31 January online filing deadline triggers a stacking set of penalties:

One day late: automatic £100 fine, even with no tax owed.
Three months late: a further £10 per day for up to 90 days, up to £900.
Six months late: another 5% of the tax due or £300, whichever is greater.
Twelve months late: a further 5% of the tax due or £300, whichever is greater.

Filed more than 12 months late, a return can attract over £1,600 in fines before interest on unpaid tax.⁹ HMRC also charges interest on outstanding balances from the date they were due. If you can’t pay on time, still file on time: it avoids the filing penalties and lets you arrange a payment plan on what you owe.

1
GOV.UK. Construction Industry Scheme
2
GOV.UK. What You Must Do as a Construction Industry Scheme (CIS) Contractor – Verify Subcontractors
3
HM Revenue & Customs. Construction Industry Scheme – A Guide for Contractors and Subcontractors (CIS 340)
4
GOV.UK. What You Must Do as a Construction Industry Scheme (CIS) Subcontractor – How to Register
5
HM Revenue & Customs. CIS305 Notes – Gross Payment Status Application
6
HM Revenue & Customs. Construction Industry Scheme Payment and Deduction Statement
7
GOV.UK. Self Assessment Tax Returns – Deadlines
8
GOV.UK. Claim a Refund of Construction Industry Scheme Deductions if You’re a Limited Company or an Agent
9
GOV.UK. Self Assessment Tax Returns – Penalties