By the ProWorks team Published
It isn't a fee and it isn't lost. It's your tax, paid early.
Under the Construction Industry Scheme, a contractor who pays you for construction work keeps back part of each payment and sends it to HMRC for you. HMRC counts every pound of it as an advance payment towards your tax and National Insurance for the year.
The deduction comes off your labour only. The materials you bought for the job and any VAT on your invoice are taken out first, and the rate is applied to what's left.
Materials - paid to you in full. No deduction on what the materials cost you.
Labour, paid - the 80% of your labour that reaches your bank.
CIS deduction - 20% of the labour, sent to HMRC in your name.
There are three, and which one you get depends on what HMRC knows about you when the contractor checks.
20%
You're registered for CIS and the contractor has verified you with HMRC. This is where most subcontractors sit.
30%
You're not registered, or the contractor can't verify you. Usually a sign something needs fixing, not a rate you have to accept.
0%
HMRC has approved you to be paid in full. You pay all your tax and National Insurance at the end of the year instead.
You can claim the extra back at the end of the year, but on £30,000 of labour the higher rate holds back £3,000 more than the standard one - money you'd rather have in the business than with HMRC.
Register for CIS on GOV.UK - you'll need your Unique Taxpayer Reference (UTR). If you're already registered, check the contractor has your exact registered name and UTR, because a mismatch is the usual reason a verification comes back at the higher rate.
Put in an invoice and see what the contractor should keep back and what should land in your account.
Include travel and subsistence.
Materials, hired plant and consumables you paid for yourself. Include the VAT you paid if you're not VAT-registered.
A quick guide, not tax advice. The deduction is never taken from VAT. Zero-rated work has no VAT to show, so choose None.
HMRC is specific about what the rate can and can't touch. Getting this wrong is the most common reason a deduction is too big.
The contractor can ask for proof of what the materials cost you, so keep the supplier invoices. Show their cost without VAT if you're VAT-registered, or with the VAT you paid if you're not. If materials aren't shown separately, the contractor will estimate what they cost and deduct from the rest - show them yourself so you're not relying on their estimate.
CIS runs on tax months, from the 6th of one month to the 5th of the next. Each one leaves you a statement worth keeping.
Every payment from the 6th to the 5th falls in the same CIS month.
The contractor totals what they've paid you and deducted that month.
You must get a payment and deduction statement within 14 days. Their return to HMRC is due the same day.
After 5 April, the year's statements add up to what you claim back.
The statement is your proof of the tax you've already paid. HMRC matches your claim against what contractors reported, so check each one against your own invoices when it arrives - not in January.
If a statement doesn't turn up by the 19th, ask for it. Contractors can be fined for not giving them, and a missing one is far easier to chase this month than next year.
It can come by email if you both agree, as long as you can save and print it.
Paying subcontractors yourself? Make their statements with the free CIS statement generator.
Payment and deduction statement
Tax month ending 5 November 2026
If you were paid at 30%, the statement also carries a verification number.
The deduction is worked out on your takings, but you're taxed on your profit. That gap is why so many subcontractors are owed a refund.
Illustration for 2026 to 2027 with no other income, outside Scotland: £12,570 personal allowance, 20% basic rate income tax and 6% Class 4 National Insurance. Your own figures will differ.
On your Self Assessment return, put your income at the full amount, before any deductions.
Enter the year's total from your statements in the CIS deductions box of the self-employment pages, or the partnership pages if you're a partner - never the employment pages.
HMRC takes the deductions off your bill and pays back anything over. Filing soon after 5 April gets the refund to you sooner than waiting for January.
Claim through your payroll, not your tax return. Send the Employer Payment Summary (EPS) alongside your usual FPS, showing the CIS deductions for the year so far.
HMRC sets them against the PAYE and National Insurance you owe. Anything left carries forward within the tax year.
After the year ends, claim back what's left over. Don't use the Corporation Tax return to pay tax with your deductions - HMRC says that can bring a penalty.
No deductions means better cash flow - but the tax is still yours to pay at the end of the year, so you need to put it aside yourself.
Business test
You do construction work, or supply labour for it, in the UK, and the business runs through a bank account.
Compliance test
You've filed your returns and paid your tax and National Insurance on time. HMRC looks back over the past 12 months.
Turnover test
Your construction turnover over the last 12 months, leaving out VAT and the cost of materials, reaches the figure for your business.
| Business | Net turnover |
|---|---|
| Sole trader | £30,000 |
| Partnership | £30,000 a partner or £100,000 |
| Limited company | £30,000 a director or £100,000 |
| Company run by 5 people or fewer | £30,000 a director and shareholder or £100,000 |
From 6 April 2026, HMRC can take gross payment status away straight away where a business knew, or should have known, that a payment was connected to fraud - and the wait before you can reapply is five years. Know who you're working for and who's further down the chain.
Know what you should be paid before the money lands, and have the figures ready to check every statement.
Set your CIS status once in your tax settings - standard, not registered or gross - and mark which customers are CIS contractors.
Invoices to a CIS contractor split labour from materials, show the CIS deduction at your rate and the amount due, so you and the contractor agree on the figure.
Export your invoices as CSV to tick off against each statement and hand to your accountant - or give them their own accounting login to see the figures directly.
ProWorks doesn't file CIS returns or your tax return - your contractor, your accountant or your accounting software does that. It keeps the invoices behind them correct.
A contractor takes 20% off your labour if you're registered for CIS and they can verify you with HMRC. If you're not registered, or they can't verify you, it's 30%. With gross payment status nothing is taken off and you pay all your tax and National Insurance at the end of the year. The deduction is an advance payment towards your tax and National Insurance, not an extra tax.
No. VAT comes out first, then the cost of materials you paid for yourself, along with hired plant, consumables and the cost of prefabricating materials. The rate applies to what's left, which is your labour, travel and subsistence. The contractor can ask for proof of that cost, so keep your supplier invoices.
As a sole trader or partner, you claim them on your Self Assessment return: put your income at the full amount before deductions, and the year's total deductions in the CIS deductions box. HMRC takes them off your bill and refunds anything over. A limited company claims through its payroll instead, by showing the deductions on its Employer Payment Summary so HMRC can set them against the PAYE and National Insurance it owes, then claiming back what's left after the year ends. HMRC warns companies not to use the Corporation Tax return to pay tax with their deductions.
You apply to HMRC and pass three tests. The business test: you do construction work in the UK and run the business through a bank account. The compliance test: you've filed returns and paid your tax and National Insurance on time. The turnover test: net construction turnover over the last 12 months, leaving out VAT and materials, of at least £30,000 as a sole trader, or £30,000 per partner or director or £100,000 for the whole business. In a company run by 5 people or fewer, shareholders count as well as directors. Since April 2026 HMRC can take the status away straight away in fraud-linked cases, with a five-year wait to reapply.
They're separate rules that often land on the same invoice. A CIS deduction is income tax the contractor keeps back from your labour and pays to HMRC for you. The VAT domestic reverse charge applies when you're both VAT-registered, and means you show the VAT on your invoice but don't add it to the total, because the contractor accounts for it to HMRC. On a reverse charge invoice, the contractor pays you the net amount less the CIS deduction.
Yes. You set your CIS status in your tax settings and mark which customers are CIS contractors. Invoices to those customers split labour from materials and show the CIS deduction at your rate and the amount due, so you know what to expect in the bank and can check it against the contractor's payment and deduction statement. ProWorks doesn't file CIS returns or your tax return - your contractor, your accountant or your accounting software does that.
VAT-registered too? How the domestic reverse charge changes the VAT on your CIS invoices.
Read more →What records you must keep, how long for, and how to keep them digital as you work.
Read more →CIS income counts towards MTD for Income Tax. What it means for sole traders and when it starts.
Read more →ProWorks shows the CIS deduction and the amount due on every invoice to a contractor, and keeps the figures ready for year end. Try it free for 30 days, no credit card required.
This page is general information, not tax advice - check with your accountant or HMRC about your own situation. Correct as of October 2026; the rules can change, so always confirm the current position in HMRC's guidance for CIS subcontractors and the CIS 340 guide.