The Reality:

HMRC deducts 20% or 30% from every subcontractor payment unless you're registered for CIS. Get gross payment status and you keep 100% of every invoice. Here's exactly how the Construction Industry Scheme works and how to minimize what HMRC takes.

Keep the rest of your compliance stack tight with UK Trades Tax Deduction Checklist, Sole Trader vs Limited Company for Trades, and Field Service Insurance Guide 2026.

⚠️ Not Tax or Accounting Advice

This guide is for informational purposes only and does not constitute tax advice, accounting advice, or professional financial services. Tax laws, allowances, and HMRC requirements change frequently.

Before making any tax decisions or filing returns: Consult a qualified accountant or tax advisor who can review your specific circumstances. What's mentioned here may not apply to your situation, and regulations may have changed since publication.

Official source: HMRC (gov.uk/hmrc)

If you work as a subcontractor in construction—bricklayer, electrician, plasterer, carpenter, whatever—the Construction Industry Scheme (CIS) controls how you get paid. Miss a step and HMRC keeps 30% of every payment. Understand the system and you can reduce deductions to 20%, or eliminate them entirely with gross payment status.

What Is CIS and Who It Applies To

The Construction Industry Scheme is HMRC's way of collecting tax from construction workers before they file their annual tax return. Contractors deduct money from subcontractor payments and pay it directly to HMRC as advance tax.

Who Counts as a Contractor

Anyone who pays subcontractors for construction work:

Construction companies
Main contractors
Property developers
Local councils and housing associations (if construction spend exceeds £3 million/year)

Who Counts as a Subcontractor

If you do construction work for a contractor, you're a subcontractor under CIS:

Bricklayers, plasterers, carpenters, joiners
Electricians, plumbers, heating engineers (working on construction sites)
Groundworkers, scaffolders, roofers
Demolition workers, decorators, floor fitters
Site cleaners (if part of construction)

Not CIS Work:

• Domestic work for homeowners (no CIS deductions)
• Architecture, surveying, project management (professional services, not construction)
• Carpet fitting, furniture delivery (not construction work)

CIS Deduction Rates: 20% vs 30% vs 0%

When a contractor pays you, they deduct one of three rates depending on your CIS registration status:

Status	Deduction Rate	What You Actually Receive
Not registered for CIS	30%	£1,000 invoice = £700 paid to you, £300 to HMRC
Registered for CIS	20%	£1,000 invoice = £800 paid to you, £200 to HMRC
Gross payment status	0%	£1,000 invoice = £1,000 paid to you

These deductions are advance tax payments, not lost money. You reclaim overpayments when you file your annual self-assessment. But the cash flow impact is brutal if you're on 30% deductions.

Cash Flow Impact Example:

Plasterer earning £50,000/year:

• Not registered (30%): £15,000 held by HMRC all year
• Registered (20%): £10,000 held by HMRC all year
• Gross status (0%): £0 held by HMRC—you manage your own tax

That £15,000 could be paying for materials, van fuel, or tools. Instead it's sitting in HMRC's account earning them interest until you file your tax return 6-18 months later.

How to Register for CIS

Registration drops your deduction rate from 30% to 20%. It takes 10 minutes online and costs nothing.

What You Need Before Registering

Unique Taxpayer Reference (UTR) - Get this when you register as self-employed with HMRC
National Insurance number
Business details - Sole trader, partnership, or limited company info

Step-by-Step CIS Registration

Step 1: Register as Self-Employed First

☐ Go to HMRC website, register as sole trader (if not already done)
☐ Receive your UTR in the post (takes 5-10 days)
☐ Set up your Government Gateway account

Step 2: Register for CIS Online

☐ Log into your HMRC Government Gateway account
☐ Select "Register for CIS" under Construction Industry Scheme
☐ Provide business name, UTR, NI number, bank details
☐ Submit—takes 10 minutes

Step 3: Confirmation

☐ Receive CIS registration confirmation immediately online
☐ Give contractors your UTR and confirm you're CIS registered
☐ Deduction rate drops to 20% from your next payment

Gross Payment Status: Get 100% of Every Payment

Gross payment status means contractors pay you the full invoice amount with zero CIS deductions. You manage your own tax payments instead of HMRC taking advance payments.

Qualification Requirements

To qualify for gross payment status, you must meet all three tests:

1. Turnover Test

Construction turnover in the past 12 months must exceed:

• Sole trader: £30,000 minimum
• Partnership (2 partners): £30,000 minimum
• Partnership (3+ partners): £30,000 minimum
• Limited company (1 director): £30,000 minimum
• Limited company (2+ directors): £30,000 minimum

2. Compliance Test

You must have filed:

• Tax returns on time for the past 12 months
• CIS returns (if you employ subcontractors)
• PAYE/NIC returns (if you have employees)
• No outstanding tax debt over £100

3. Business Test

You must prove you're a legitimate construction business:

• Appropriate insurance (public liability minimum)
• Business bank account
• Relevant qualifications or 3+ years experience in construction
• UK-based business operations

How to Apply for Gross Payment Status

Apply online through your HMRC Government Gateway account. You'll need:

Last 12 months' turnover figures
Proof of qualifications (CSCS card, City & Guilds certificates, etc.)
Public liability insurance policy number
Business bank account details
UTR and Companies House number (if limited company)

HMRC processes applications in 4-6 weeks. They may request additional evidence or conduct compliance checks.

Why Gross Payment Status Matters:

Example: Electrician invoices £60,000/year in subcontract work.

Without gross status (20% deductions):

• £12,000 deducted and sent to HMRC throughout year
• Actual tax owed (after expenses): £8,000
• Refund after filing tax return: £4,000
• Cash flow problem: £12,000 tied up in HMRC account for 6-18 months

With gross status (0% deductions):

• £0 deducted by contractors
• You manage tax payments quarterly or annually
• Cash flow solution: Use that £12,000 for business growth, not HMRC's savings account

CIS Monthly Returns (If You're a Contractor)

If you pay subcontractors, you're a contractor and must file monthly CIS returns to HMRC.

What Goes on a CIS Return

Name and UTR of each subcontractor you paid
Amount paid (excluding VAT and materials if specified separately)
CIS deduction taken (20%, 30%, or 0%)
Total amount sent to HMRC

Deadlines

CIS returns must be filed by the 19th of each month for the previous tax month. Payment to HMRC is due by the same date.

CIS Tax Month vs Calendar Month:

CIS months run from 6th to 5th:

• Tax month 1: 6 April – 5 May (return due 19 May)
• Tax month 2: 6 May – 5 June (return due 19 June)
• Tax month 3: 6 June – 5 July (return due 19 July)

If you paid subcontractors between 6 May and 5 June, your CIS return is due 19 June.

Penalties for Late CIS Returns

Automatic Penalties:

1 day late: £100 penalty
2 months late: Additional £200 penalty
6 months late: Additional £300 penalty OR 5% of CIS deductions (whichever is higher)
12 months late: Additional £300 penalty OR 5% of CIS deductions (whichever is higher)

Plus: Daily penalties of £10/day after 6 months (max £900).

CIS Recordkeeping Requirements

HMRC requires contractors and subcontractors to keep specific CIS records for at least 3 years.

Subcontractors Must Keep:

CIS payment and deduction statements from contractors
Invoices issued to contractors
Records of materials costs (if deducted from CIS calculation)
Proof of expenses claimed against CIS deductions

Contractors Must Keep:

Verification checks for each subcontractor (HMRC confirmation of UTR/deduction rate)
Payment records showing gross amount, materials, and CIS deduction
CIS monthly return submissions
Proof of payment to HMRC

Common CIS Mistakes That Cost Money

1. Not Registering for CIS at All

Real Case:

A joiner worked 9 months on a commercial site before realizing he should have registered for CIS. Contractors deducted 30% (£18,000) instead of 20% (£12,000).

Cost: £6,000 extra held by HMRC for 6-18 months until tax return filed. Could have been avoided with 10-minute registration.

2. Giving Contractors Wrong UTR

If you provide the wrong UTR, contractors can't verify your CIS status. They'll default to 30% deductions until you correct it.

3. Mixing Domestic and CIS Work on Same Invoice

Domestic work (for homeowners) is not subject to CIS. Commercial/contractor work is. Don't invoice both on the same document—you'll confuse deduction calculations.

4. Forgetting to Claim CIS Deductions on Tax Return

CIS deductions appear on your tax return under "CIS deductions suffered." If you don't enter them, you won't get credit for tax already paid. HMRC won't automatically match them.

5. Losing Gross Payment Status Due to Late Returns

File one self-assessment late and HMRC can revoke gross payment status. Back to 20% deductions until you reapply and prove compliance again.

CIS Strategy Summary

The Optimal CIS Approach:

Starting Out (First 12 Months):

• Register as self-employed, get your UTR
• Register for CIS immediately (drops deductions to 20%)
• Save CIS deduction statements from every contractor
• File first tax return on time to qualify for gross status later

After £30K+ Turnover:

• Apply for gross payment status
• Gather proof: insurance, qualifications, turnover evidence
• Wait 4-6 weeks for approval
• Once approved, keep 100% of payments and manage your own tax

Maintaining Gross Status:

• File all tax returns on time (self-assessment, CIS, VAT if applicable)
• Keep insurance current
• Pay tax liabilities promptly
• HMRC reviews gross status every 12 months—one late return and you lose it

The Bottom Line

CIS is unavoidable if you work as a construction subcontractor. The system costs you cash flow unless you take action:

Three Levels of CIS Management:

Level 1: Not Registered

30% deducted from every payment. Worst cash flow position. Register immediately.

Level 2: CIS Registered

20% deducted. Better, but still £10,000-£15,000 tied up in HMRC account per year.

Level 3: Gross Payment Status

0% deducted. You control your cash flow and manage tax yourself. This is the goal.

Action plan: Register for CIS today (10 minutes). Hit £30K turnover. Apply for gross payment status. Keep filing returns on time. Keep 100% of your money.

⚠️ Important Legal Disclaimer

This Guide is For Informational Purposes Only

The information provided does not constitute legal advice, tax advice, accounting advice, financial advice, insurance advice, or professional services of any kind. This content is general information that may not apply to your specific situation.

Laws and Regulations Change Frequently

Tax codes, licensing requirements, employment law, data protection regulations, and other legal obligations are subject to frequent changes. Information that was current at the time of publication may now be outdated.

Consult Qualified Professionals

Before making any decisions based on this information:

Consult a qualified accountant for tax and financial matters
Consult a solicitor for legal, contractual, and employment matters
Verify licensing requirements with relevant regulatory bodies
Check compliance requirements with ICO, HMRC, and other authorities
Review with your professional indemnity insurer for coverage questions

No Liability

Toolfy, the article authors, and related entities accept no liability whatsoever for decisions made, actions taken, or losses incurred based on information in this guide. You are solely responsible for ensuring compliance with all applicable laws, regulations, and professional standards.

Verify With Official Sources

Always check official government and regulatory sources:

• HMRC (Tax): gov.uk/hmrc
• Gas Safe Register: gassaferegister.co.uk
• ICO (Data Protection): ico.org.uk
• ACAS (Employment): acas.org.uk
• TPS (Telemarketing): tpsonline.org.uk

Last updated: 6 December 2025. This disclaimer applies to all content in this article and any linked resources.

The Reality:

Keep the rest of your compliance stack tight with UK Trades Tax Deduction Checklist, Sole Trader vs Limited Company for Trades, and Field Service Insurance Guide 2026.

⚠️ Not Tax or Accounting Advice

Official source: HMRC (gov.uk/hmrc)

What Is CIS and Who It Applies To

Who Counts as a Contractor

Anyone who pays subcontractors for construction work:

Construction companies
Main contractors
Property developers
Local councils and housing associations (if construction spend exceeds £3 million/year)

Who Counts as a Subcontractor

If you do construction work for a contractor, you're a subcontractor under CIS:

Bricklayers, plasterers, carpenters, joiners
Electricians, plumbers, heating engineers (working on construction sites)
Groundworkers, scaffolders, roofers
Demolition workers, decorators, floor fitters
Site cleaners (if part of construction)

Not CIS Work:

• Domestic work for homeowners (no CIS deductions)
• Architecture, surveying, project management (professional services, not construction)
• Carpet fitting, furniture delivery (not construction work)

CIS Deduction Rates: 20% vs 30% vs 0%

When a contractor pays you, they deduct one of three rates depending on your CIS registration status:

Status	Deduction Rate	What You Actually Receive
Not registered for CIS	30%	£1,000 invoice = £700 paid to you, £300 to HMRC
Registered for CIS	20%	£1,000 invoice = £800 paid to you, £200 to HMRC
Gross payment status	0%	£1,000 invoice = £1,000 paid to you

These deductions are advance tax payments, not lost money. You reclaim overpayments when you file your annual self-assessment. But the cash flow impact is brutal if you're on 30% deductions.

Cash Flow Impact Example:

Plasterer earning £50,000/year:

• Not registered (30%): £15,000 held by HMRC all year
• Registered (20%): £10,000 held by HMRC all year
• Gross status (0%): £0 held by HMRC—you manage your own tax

That £15,000 could be paying for materials, van fuel, or tools. Instead it's sitting in HMRC's account earning them interest until you file your tax return 6-18 months later.

How to Register for CIS

Registration drops your deduction rate from 30% to 20%. It takes 10 minutes online and costs nothing.

What You Need Before Registering

Unique Taxpayer Reference (UTR) - Get this when you register as self-employed with HMRC
National Insurance number
Business details - Sole trader, partnership, or limited company info

Step-by-Step CIS Registration

Step 1: Register as Self-Employed First

☐ Go to HMRC website, register as sole trader (if not already done)
☐ Receive your UTR in the post (takes 5-10 days)
☐ Set up your Government Gateway account

Step 2: Register for CIS Online

☐ Log into your HMRC Government Gateway account
☐ Select "Register for CIS" under Construction Industry Scheme
☐ Provide business name, UTR, NI number, bank details
☐ Submit—takes 10 minutes

Step 3: Confirmation

☐ Receive CIS registration confirmation immediately online
☐ Give contractors your UTR and confirm you're CIS registered
☐ Deduction rate drops to 20% from your next payment

Gross Payment Status: Get 100% of Every Payment

Gross payment status means contractors pay you the full invoice amount with zero CIS deductions. You manage your own tax payments instead of HMRC taking advance payments.

Qualification Requirements

To qualify for gross payment status, you must meet all three tests:

1. Turnover Test

Construction turnover in the past 12 months must exceed:

• Sole trader: £30,000 minimum
• Partnership (2 partners): £30,000 minimum
• Partnership (3+ partners): £30,000 minimum
• Limited company (1 director): £30,000 minimum
• Limited company (2+ directors): £30,000 minimum

2. Compliance Test

You must have filed:

• Tax returns on time for the past 12 months
• CIS returns (if you employ subcontractors)
• PAYE/NIC returns (if you have employees)
• No outstanding tax debt over £100

3. Business Test

You must prove you're a legitimate construction business:

• Appropriate insurance (public liability minimum)
• Business bank account
• Relevant qualifications or 3+ years experience in construction
• UK-based business operations

How to Apply for Gross Payment Status

Apply online through your HMRC Government Gateway account. You'll need:

Last 12 months' turnover figures
Proof of qualifications (CSCS card, City & Guilds certificates, etc.)
Public liability insurance policy number
Business bank account details
UTR and Companies House number (if limited company)

HMRC processes applications in 4-6 weeks. They may request additional evidence or conduct compliance checks.

Why Gross Payment Status Matters:

Example: Electrician invoices £60,000/year in subcontract work.

Without gross status (20% deductions):

• £12,000 deducted and sent to HMRC throughout year
• Actual tax owed (after expenses): £8,000
• Refund after filing tax return: £4,000
• Cash flow problem: £12,000 tied up in HMRC account for 6-18 months

With gross status (0% deductions):

• £0 deducted by contractors
• You manage tax payments quarterly or annually
• Cash flow solution: Use that £12,000 for business growth, not HMRC's savings account

CIS Monthly Returns (If You're a Contractor)

If you pay subcontractors, you're a contractor and must file monthly CIS returns to HMRC.

What Goes on a CIS Return

Name and UTR of each subcontractor you paid
Amount paid (excluding VAT and materials if specified separately)
CIS deduction taken (20%, 30%, or 0%)
Total amount sent to HMRC

Deadlines

CIS returns must be filed by the 19th of each month for the previous tax month. Payment to HMRC is due by the same date.

CIS Tax Month vs Calendar Month:

CIS months run from 6th to 5th:

• Tax month 1: 6 April – 5 May (return due 19 May)
• Tax month 2: 6 May – 5 June (return due 19 June)
• Tax month 3: 6 June – 5 July (return due 19 July)

If you paid subcontractors between 6 May and 5 June, your CIS return is due 19 June.

Penalties for Late CIS Returns

Automatic Penalties:

1 day late: £100 penalty
2 months late: Additional £200 penalty
6 months late: Additional £300 penalty OR 5% of CIS deductions (whichever is higher)
12 months late: Additional £300 penalty OR 5% of CIS deductions (whichever is higher)

Plus: Daily penalties of £10/day after 6 months (max £900).

CIS Recordkeeping Requirements

HMRC requires contractors and subcontractors to keep specific CIS records for at least 3 years.

Subcontractors Must Keep:

CIS payment and deduction statements from contractors
Invoices issued to contractors
Records of materials costs (if deducted from CIS calculation)
Proof of expenses claimed against CIS deductions

Contractors Must Keep:

Verification checks for each subcontractor (HMRC confirmation of UTR/deduction rate)
Payment records showing gross amount, materials, and CIS deduction
CIS monthly return submissions
Proof of payment to HMRC

Common CIS Mistakes That Cost Money

1. Not Registering for CIS at All

Real Case:

A joiner worked 9 months on a commercial site before realizing he should have registered for CIS. Contractors deducted 30% (£18,000) instead of 20% (£12,000).

Cost: £6,000 extra held by HMRC for 6-18 months until tax return filed. Could have been avoided with 10-minute registration.

2. Giving Contractors Wrong UTR

If you provide the wrong UTR, contractors can't verify your CIS status. They'll default to 30% deductions until you correct it.

3. Mixing Domestic and CIS Work on Same Invoice

Domestic work (for homeowners) is not subject to CIS. Commercial/contractor work is. Don't invoice both on the same document—you'll confuse deduction calculations.

4. Forgetting to Claim CIS Deductions on Tax Return

CIS deductions appear on your tax return under "CIS deductions suffered." If you don't enter them, you won't get credit for tax already paid. HMRC won't automatically match them.

5. Losing Gross Payment Status Due to Late Returns

File one self-assessment late and HMRC can revoke gross payment status. Back to 20% deductions until you reapply and prove compliance again.

CIS Strategy Summary

The Optimal CIS Approach:

Starting Out (First 12 Months):

• Register as self-employed, get your UTR
• Register for CIS immediately (drops deductions to 20%)
• Save CIS deduction statements from every contractor
• File first tax return on time to qualify for gross status later

After £30K+ Turnover:

• Apply for gross payment status
• Gather proof: insurance, qualifications, turnover evidence
• Wait 4-6 weeks for approval
• Once approved, keep 100% of payments and manage your own tax

Maintaining Gross Status:

• File all tax returns on time (self-assessment, CIS, VAT if applicable)
• Keep insurance current
• Pay tax liabilities promptly
• HMRC reviews gross status every 12 months—one late return and you lose it

The Bottom Line

CIS is unavoidable if you work as a construction subcontractor. The system costs you cash flow unless you take action:

Three Levels of CIS Management:

Level 1: Not Registered

30% deducted from every payment. Worst cash flow position. Register immediately.

Level 2: CIS Registered

20% deducted. Better, but still £10,000-£15,000 tied up in HMRC account per year.

Level 3: Gross Payment Status

0% deducted. You control your cash flow and manage tax yourself. This is the goal.

Action plan: Register for CIS today (10 minutes). Hit £30K turnover. Apply for gross payment status. Keep filing returns on time. Keep 100% of your money.

⚠️ Important Legal Disclaimer

This Guide is For Informational Purposes Only

Laws and Regulations Change Frequently

Consult Qualified Professionals

Before making any decisions based on this information:

Consult a qualified accountant for tax and financial matters
Consult a solicitor for legal, contractual, and employment matters
Verify licensing requirements with relevant regulatory bodies
Check compliance requirements with ICO, HMRC, and other authorities
Review with your professional indemnity insurer for coverage questions

No Liability

Verify With Official Sources

Always check official government and regulatory sources:

• HMRC (Tax): gov.uk/hmrc
• Gas Safe Register: gassaferegister.co.uk
• ICO (Data Protection): ico.org.uk
• ACAS (Employment): acas.org.uk
• TPS (Telemarketing): tpsonline.org.uk

Last updated: 6 December 2025. This disclaimer applies to all content in this article and any linked resources.

What Is CIS and Who It Applies To

Who Counts as a Contractor

Who Counts as a Subcontractor

CIS Deduction Rates: 20% vs 30% vs 0%

How to Register for CIS

What You Need Before Registering

Step-by-Step CIS Registration

Gross Payment Status: Get 100% of Every Payment

Qualification Requirements

1. Turnover Test

2. Compliance Test

3. Business Test

How to Apply for Gross Payment Status

CIS Monthly Returns (If You're a Contractor)

What Goes on a CIS Return

Deadlines

Penalties for Late CIS Returns

CIS Recordkeeping Requirements

Subcontractors Must Keep:

Contractors Must Keep:

Common CIS Mistakes That Cost Money

1. Not Registering for CIS at All

2. Giving Contractors Wrong UTR

3. Mixing Domestic and CIS Work on Same Invoice

4. Forgetting to Claim CIS Deductions on Tax Return

5. Losing Gross Payment Status Due to Late Returns

CIS Strategy Summary

The Bottom Line

⚠️ Important Legal Disclaimer

Stop 20% CIS deductions from eating cash flow

Related Articles

UK Trades Tax Deduction Checklist 2026

VAT Registration Guide for Trade Businesses 2026

How to Hire and Manage Subcontractors in UK Trades

What Is CIS and Who It Applies To

Who Counts as a Contractor

Who Counts as a Subcontractor

CIS Deduction Rates: 20% vs 30% vs 0%

How to Register for CIS

What You Need Before Registering

Step-by-Step CIS Registration

Gross Payment Status: Get 100% of Every Payment

Qualification Requirements

1. Turnover Test

2. Compliance Test

3. Business Test

How to Apply for Gross Payment Status

CIS Monthly Returns (If You're a Contractor)

What Goes on a CIS Return

Deadlines

Penalties for Late CIS Returns

CIS Recordkeeping Requirements

Subcontractors Must Keep:

Contractors Must Keep:

Common CIS Mistakes That Cost Money

1. Not Registering for CIS at All

2. Giving Contractors Wrong UTR

3. Mixing Domestic and CIS Work on Same Invoice

4. Forgetting to Claim CIS Deductions on Tax Return

5. Losing Gross Payment Status Due to Late Returns

CIS Strategy Summary

The Bottom Line

⚠️ Important Legal Disclaimer

Stop 20% CIS deductions from eating cash flow

Related Articles

UK Trades Tax Deduction Checklist 2026

VAT Registration Guide for Trade Businesses 2026

How to Hire and Manage Subcontractors in UK Trades