CIS stands for the Construction Industry Scheme — the HMRC scheme that governs how contractors pay subcontractors for construction work in the UK. In practical terms, it means that most contractors are legally required to deduct tax from a subcontractor’s payment before it ever reaches them, and pass that deduction straight to HMRC.
This is different from most other self-employed work outside construction, where payments are normally made gross with no tax taken off at source. CIS exists specifically because construction has historically had high levels of self-employment, and HMRC uses it to collect tax throughout the year rather than relying solely on an end-of-year return.
This is the detail every subcontractor should know before they invoice anyone, and it’s the part most explanations of CIS skip past.
KEY FACTS: If you’re registered with HMRC under CIS, the contractor deducts tax at 20% from the labour part of your payment.
If you’re not registered, the contractor is required to deduct 30% instead — a straight ten-point penalty for not registering.
A smaller group of subcontractors with a strong compliance and turnover history can apply for gross payment status, meaning no deduction at all — they’re paid the full invoice and settle tax through their normal return.
Registration is free. There is essentially no good reason not to register if you’re subcontracting regularly.
To make that concrete: on a £4,000 labour invoice, a registered subcontractor has £800 deducted and receives £3,200. An unregistered subcontractor on the exact same invoice has £1,200 deducted and receives £2,800 — £400 less, for identical work, purely because of registration status.
Over a year of steady subcontracting, that gap adds up to real money sitting with HMRC instead of in a bank account, even though it eventually counts toward the same tax bill either way.
No — and this is a common point of confusion. The 20% or 30% deducted isn’t a separate tax; it’s treated as an advance payment toward the subcontractor’s income tax and National Insurance for that year, and gets reconciled through their Self Assessment return. Someone who has overpaid through deductions across the year can end up due a refund once their return is filed.
Deductions are also only calculated on the labour element of an invoice — genuine materials costs that a subcontractor has paid for themselves are stripped out before the percentage is applied, provided those material costs are clearly itemised on the invoice.
CIS isn’t just paperwork sitting in the background. It affects cash flow, admin, and how smoothly a working relationship starts. A subcontractor who has their registration and details sorted in advance is easier to bring onto a project and gets paid at the better rate from day one. A contractor who verifies subcontractors early avoids delays, incorrect deductions, and awkward conversations further down the line.
On a busy project, nobody wants to lose time or goodwill chasing basic registration details. The earlier both sides sort this out, the easier it is to keep work — and payments — moving without friction.
Being organised isn’t just good admin — it directly affects whether you’re taxed at 20% or 30% on every invoice you send.
Contractors have a legal obligation to verify a subcontractor’s CIS status with HMRC before making the first payment under a new contract — HMRC then confirms which deduction rate applies. Skipping or delaying this step risks applying the wrong rate, which creates problems for both sides at tax return time.
A clear process — what information is needed before a subcontractor starts, how records are kept, who’s responsible for checking status — removes a source of friction that has nothing to do with the quality of the work itself.
Most people only think hard about CIS when something’s gone wrong: a deduction looks different than expected, a payment is delayed, or records are missing at tax return time. Getting the basics right in advance — registration, clear invoicing, organised records — is unglamorous, but it removes an entire category of friction that construction doesn’t need on top of everything else a project already involves.
This article is a plain-English overview, not tax advice. For decisions about registration, gross payment status or a specific tax position, always check current HMRC guidance directly or speak to a qualified accountant, since rates and thresholds are reviewed periodically.
MESHHH is not an accounting platform and doesn’t replace HMRC guidance or an accountant. Its role is different: helping construction people present themselves professionally and connect directly.
A strong MESHHH profile supports the working relationship before the paperwork stage — showing trade, location, availability, project photos, credentials and reputation. For contractors and project managers, that makes it easier to find suitable people and start the conversation, and the registration details, on the right foot from day one.
HMRC — CIS guide for contractors and subcontractors (CIS340)
HMRC — Registering as a CIS subcontractor
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