What’s a CIS tax deduction and when do I pay it?

If you work in construction as a subcontractor, have you noticed that the amount landing in your bank account isn’t quite what you invoiced for?

That’s not a mistake: it’s the Construction Industry Scheme (CIS) doing its thing in the background. 

If this applies to you, don’t worry, we’re here to walk you through what CIS means for your money, how the deductions work, and how to get any overpaid tax back where it belongs — with you.

Let’s jump in. 

Key takeaways

• CIS is a tax deduction scheme for the construction industry, where contractors take tax off your pay before you see it
• Deduction rates are 20% if you’re registered, 30% if you’re not, or 0% with gross payment status
• You reclaim any overpaid tax through your Self Assessment CIS tax return

The Construction Industry Scheme (CIS) is HMRC’s way of collecting tax from subcontractors as you earn, rather than waiting until the end of the year. 

If you work for yourself (either as a sole trader or you’ve been through the company registration process and set up a limited company) and you do construction work for a contractor, CIS almost certainly applies to you. 

So, how does it work? 

Here’s an example: say you’re a self–employed electrician working for a building firm on a new housing development. Before that firm pays your invoice, they’ll take off a CIS tax deduction and send it straight to HMRC on your behalf. Think of it as a bit like Pay As You Earn (PAYE), but for the self–employed.

The contractor you’re working for does the maths, not you. Before they pay your invoice, they:

• Work out the labour costs (FYI, materials you’ve paid for don’t count towards the deduction)
• Take off the relevant percentage
• Pay that amount straight to HMRC

What lands in your account is whatever’s left.

Every deduction gets logged as an advance payment towards your final income tax and National Insurance bill for the year. 

This isn’t a case of paying more tax (although it might sound like it). It’s tax you’d owe anyway, just collected a bit earlier. 

If you find out you’ve paid in more than you owe, you get the difference back via HMRC.

CIS tax rates are simple when compared to other types of tax, like income tax. There are just three CIS bands:

• 20%: if you’re registered for CIS with HMRC (the standard rate for most subcontractors)
• 30%: if you’re not registered, or your details can’t be verified
• 0%: if you’ve got gross payment status

People sometimes ask about CIS tax brackets, but CIS doesn’t really work that way. Unlike other tax types, there’s no sliding scale based on how much you earn. It’s simply a case of which of the three rates applies to your situation.

What is gross payment status? If HMRC agrees you meet certain conditions, including a subcontractor turnover test and a clean compliance record, you can be paid in full with no deduction at all, and settle your tax bill yourself through Self Assessment. 

This can present a nice bit of extra cash if your business qualifies — so it’s worth taking a look.

A CIS tax deduction is the amount the contractor takes off your pay before you receive it, at either 20%, 30%, or 0% (the rates we just covered above).

It shows up on the payment and deduction statement your contractor gives you each month, which you’ll want to keep safe for when you come to do your tax return.

Alright, time to get your calendar out. There are a few key dates to jot down:

• 5 October: the date you register for Self Assessment if this is your first year of self–employment
• 31 January: the date you file your online Self Assessment return and pay any tax owed
• 19th of each month: the date contractors must file CIS returns and pay HMRC (this one’s on them, not you)

Want a full picture of what’s due across the tax year? Check out (and bookmark) our guide to business tax deadlines 2026/27, which covers everything in one place.

Tip: Set a reminder for early April, which is when the new tax year starts, to gather your CIS statements and expenses together. Filing early means any refunds land in your account sooner rather than later. Woop!

If you’ve noticed that the deductions taken from your pay over the year add up to more than your final tax bill, you’re most likely due a CIS tax rebate. 

Don’t worry, this is really common. Many subcontractors end up overpaying because: 

• Your personal allowance isn’t applied: everyone in the UK gets a tax–free allowance of £12,570. CIS deductions often ignore this, with contractors deducting 20%. But when HMRC calculates your tax bill, the first £12,570 of profit is tax–free
• Your expenses reduce your taxable profit: CIS is deducted from your gross income, but HMRC taxes your profit (income minus allowable expenses). For a list of common business expenses, see the next section
• You were deducted at 30% but should have been at 20%: this often happens when a contractor can’t verify your details. Getting registered means you’re only deducted at the correct rate going forward, and you can reclaim any difference for the year just gone

How to make a claim:
You’ll need to file a CIS tax return through Self Assessment, reporting your full gross income (before deductions) and the total CIS tax already taken off.

Then HMRC works out what you owe, compares it with what’s already been paid, and refunds the difference.

Tip: Opening a business current account can make tax time easier. It keeps your personal and business finances separate, and you can track expenses and how much tax you owe throughout the year.

Claiming business expenses can reduce your taxable profit, which can help to increase your tax rebate. 

Common expenses for subcontractors include:

• Tools and equipment
• Protective clothing and safety gear
• Travel between sites (not your regular commute)
• Materials you’ve bought yourself
• Public liability insurance
• A portion of phone and admin costs that you’ve used for work

It’s always a good idea to keep receipts and records as you go because it can make life much easier come January (when you need to submit your tax return!)

Making Tax Digital for Income Tax is rolling out gradually, and it will affect CIS subcontractors depending on how much you earn. This applies if you’re a sole trader — if you work through a limited company, you’ll pay corporation tax instead, and these rules won’t apply to you. 

Here’s how it works:
From April 2026, it applies to you if your gross self–employment income (combined with any property income) is over £50,000. In April 2027, this figure is dropping to £30,000. If you’re above that threshold, you’ll swap your annual Self Assessment tax return for quarterly digital updates, plus a final tax declaration. Your CIS deductions still get reconciled in the same way, just more often (four times a year).

If you’re under the threshold for now, nothing changes yet. But it’s worth keeping digital records regardless, so you’re ready and prepped for HMRC.

CIS can feel complicated, but if you know your rate, keep your statements organised, and file on time, claiming back what’s yours can be straightforward. 

The main thing to remember is: don’t let expenses go unclaimed just because tracking them feels like a faff. Those small habits, kept up through the year, are what can turn tax season from a panic into a five–minute job.

Looking for more small business tips and advice? Head over to our resource hub. From business banking to tax and accounting, we’ve got you covered. 

Once you’ve filed your Self Assessment return, HMRC usually processes refunds within a few weeks — though it can take longer during busy periods around the January deadline. Filing early usually means a quicker payout.

It depends entirely on your deductions versus your actual tax liability, plus any expenses you claim. There’s no fixed amount — some subcontractors get back a few hundred pounds, others considerably more.

You can claim as soon as the tax year ends on 5 April, by filing your Self Assessment return. You’ve got until the following 31 January to do this, though filing sooner means you’re paid sooner.