Why do contractors take 20% or 30%?
CIS makes contractors in construction collect tax from the subcontractors they pay. The rate depends on one thing: whether HMRC can match you to a CIS registration when the contractor checks. If you're registered and the details match, it's 20%. If you're not registered, or the name and UTR you gave don't match HMRC's records, it's 30%.
Either way the money isn't lost. It's sent to HMRC as an advance payment towards your income tax and National Insurance. The difference is cash flow: at 30% you wait longer for more of your own money to come back.
What is the deduction worked out on?
Only your labour. The contractor shouldn't deduct from:
- VAT on your invoice
- materials you paid for yourself
- plant hired for the job
- consumables used up on the job, such as fixings and blades
Show materials as a separate line and keep the receipts. If you can't show what they cost, the contractor will estimate the figure.
Example. You invoice £2,000 for a job: £1,400 labour and £600 of materials you bought. A registered subcontractor has £280 deducted (20% of £1,400) and receives £1,720. Unregistered, £420 is deducted (30% of £1,400) and you receive £1,580.
How do I register as a CIS subcontractor?
- If you don't have a UTR yet, register for self-assessment as a sole trader and say you're working as a subcontractor. That signs you up for both.
- If you already have a UTR, register for CIS online through GOV.UK, signed in to your HMRC account. You'll need your legal business name (and trading name if different), your UTR, your VAT number if you have one, and the date you started.
- Give each contractor exactly the same details. Your name and UTR as registered. This is how they verify you, and a mismatch is the usual reason for the 30% rate.
Registering is free. If you're also a contractor, because you pay other trades, you register as both.
Payment and deduction statements
Each month a contractor pays you, they must give you a statement showing what they paid and what they deducted, within 14 days of the end of the tax month (the 5th). Keep every one. You need the totals for your tax return, and they're your evidence if HMRC asks. If a contractor won't provide one, or has gone out of business, GOV.UK explains how to write to HMRC with the details instead.
Getting the deductions back
As a sole trader, you put your total pay before deductions as income on your self-assessment return, and the total deductions in the CIS box. HMRC works out your real bill on your profit, after your personal allowance and expenses, and takes the deductions off. Because the 20% ignores both of those, many subcontractors are owed money back. How CIS refunds work goes through it with an example.
Is gross payment status worth it?
With gross payment status, contractors pay you in full and you pay all your tax through self-assessment. To qualify as a sole trader you need:
- turnover of at least £30,000 in the last 12 months from construction work, not counting VAT or materials
- a record of filing returns and paying tax on time
- a bank account that the business is run through
It suits subcontractors whose deductions would mostly come back as a refund anyway, and who are disciplined about setting tax aside. The catch is that nothing is taken during the year, so the whole bill lands in January, often with payments on account on top. HMRC reviews the status every year, and late returns or payments can lose it.
What changed in April 2026?
New regulations took effect on 6 April 2026. The main change for anyone who pays subcontractors is that monthly nil returns are back: a contractor who pays no subcontractors in a tax month has to file a nil return unless they've told HMRC in advance that no payments will be made. If you're a subcontractor only, the deduction rates and registration haven't changed.
Common questions
Why is my contractor taking 30% when I'm registered?
Usually because they couldn't verify you. The name and UTR you gave them have to match exactly what HMRC holds. Check the details with them, then ask them to verify you again.
Is CIS deducted from materials?
No. The deduction comes off your labour only. VAT, materials you paid for, plant hire and consumables aren't deducted from, so show them separately on your invoice and keep the receipts.
Do I need to register for CIS if I'm employed by the builder?
No. CIS is for self-employed subcontractors and businesses. If you're an employee, tax comes off through PAYE instead.
Does my pay before or after CIS count for Making Tax Digital?
Before. The MTD limit looks at your turnover, which is your full pay for the work. CIS deductions are tax paid in advance, not a cost of the business.
Can I lose gross payment status?
Yes. HMRC reviews it every year and can remove it if you file returns or pay tax late.
More guides
- How to register as self-employed in the UK (sole trader)
- Self-employed tax rates 2026/27: what you'll pay on your profit
- Self-assessment deadline: 31 January 2027
- Payments on account: why your January tax bill is bigger than you expected
Sources
- What you must do as a CIS subcontractor, GOV.UK. Checked 28 Oct 2026
- CIS subcontractors: how to register, GOV.UK. Checked 28 Oct 2026
- CIS subcontractors: how to get gross payment status, GOV.UK. Checked 28 Oct 2026
- The Income Tax (Construction Industry Scheme) (Amendment) Regulations 2026, legislation.gov.uk. Checked 28 Oct 2026
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