What CIS actually is, in one sentence
If you do construction work as a subcontractor for a contractor business, the contractor must deduct tax from your labour payments at source and pay it directly to HMRC — money that counts towards your tax bill at the end of the year. That's the Construction Industry Scheme. It applies whether you're a sole trader, a partnership, or a limited company doing construction work.
You don't avoid the tax — you just pay it earlier, in dribs and drabs, instead of in one lump at year-end.
Who CIS applies to
CIS applies if you do any of the following as a subcontractor:
- Site preparation, demolition, ground works
- Building work — walls, floors, roofs
- Plumbing, heating, ventilation, electrics where they're part of construction
- Painting and decorating that's part of a build
- Installing fixtures and systems integral to the building
It doesn't apply to: standalone maintenance and repair work for end clients (you billing a homeowner directly is not CIS), architecture or design fees, plant hire without an operator, or carpet fitting.
The deduction rates
The rate depends on your CIS status with HMRC:
- 20% — Registered. You've told HMRC you do construction work and you're on the CIS register. Most subcontractors are here.
- 30% — Unregistered. HMRC can't verify you, so contractors must deduct the higher rate. Easy fix — register at gov.uk and you drop to 20%.
- 0% — Gross Payment Status. HMRC has decided you're reliable enough to pay your own tax in Self Assessment. You receive the full amount on every invoice — no deductions taken. See our guide on whether Gross Payment Status is worth applying for.
Labour vs materials — the most common mistake
CIS only applies to the labour portion of your invoice. Materials are exempt, but only if they're itemised separately. If you bill £1,500 lumped together with no breakdown, your contractor will deduct CIS on the whole amount — including any materials you bought.
So if you laid £400 of materials on a £1,200 labour job, your invoice should show both lines:
Sample CIS-correct invoice
- Labour: £1,200
- Materials: £400
- Subtotal: £1,600
- CIS deduction (20% of labour): −£240
- Net payment to you: £1,360
See exactly what you'll receive on any job with our free CIS deduction calculator.
CIS deductions, tracked automatically.
Labour and materials split on every invoice. Year-to-date deductions ready for your Self Assessment. Built for sole-trader subcontractors.
£15/month, locked. 14-day free trial.
What happens to the deduction
The contractor pays the deduction to HMRC each month, and gives you a Payment and Deduction Statement (PDS) showing how much was taken. Keep every PDS — they're the evidence of tax already paid.
At year-end, you file your Self Assessment and declare the deductions on the CIS section. They're offset against your final tax bill. If the deductions exceed what you owe — which is common for sole traders with lots of allowable expenses — you get a refund. See how to reclaim CIS as a sole trader.
What Honest Invoices does about CIS
Every invoice you create can show labour and materials as separate lines and pre-calculate the CIS deduction for your status. We keep a running total of deductions you've had taken across the tax year, so you know exactly what you're owed back before you sit down to do your Self Assessment.
£15/month. Locked. 14-day free trial.
CIS deductions, tracked automatically.
Labour and materials split on every invoice. Year-to-date deductions ready for your Self Assessment. Built for sole-trader subcontractors.
£15/month, locked. 14-day free trial.