CIS explained for subcontractors in 5 minutes

If you’ve ever been paid £800 on an invoice for £1,000 and wondered where the other £200 went — that’s CIS. The Construction Industry Scheme is how HMRC collects tax from subcontractors before the money reaches them. It’s not a tax on top — it’s a tax on account. You get it back against your annual return.

Who it applies to

Any construction work where a contractor pays a subcontractor. "Construction" covers most trades on a building site: groundwork, brickwork, plastering, joinery, roofing, painting, demolition, fitting-out. It does not cover carpet fitting, architecture, surveying, or delivery drivers.

If you’re a sole trader plumber working direct for homeowners, CIS doesn’t apply to you. If you’re a plumber subcontracting to a main builder on a new-build site, it does.

The deduction rates

• 20% — if you’re registered with HMRC as a subcontractor and verified.
• 30% — if you’re not registered (they assume the worst).
• 0% — if you have Gross Payment Status, which means the contractor pays you the full invoice and you deal with your own tax.

The difference between 20% and 30% is material — on £50,000 of invoices in a year, that’s £5,000 cash-flow you can’t spend until your return is filed. Worth getting registered.

Getting Gross Payment Status

Gross status is the goal for most established subbies. To qualify you need to pass three tests:

• Business test — you run a real construction business with a bank account.
• Turnover test — your CIS-type income (excluding VAT and materials) is over £30,000 if you’re a sole trader, or over £100,000 if you’re a partnership/company. For companies there’s a £30k-per-director version.
• Compliance test — you’ve filed your tax returns on time for the last 12 months and paid what you owed.

If you’ve been late on tax returns — even by a day — you’ll fail compliance for 12 months. Getting and keeping Gross Payment Status is mostly about never missing a deadline.

What the contractor actually does

Every month the contractor files a CIS Return (CIS300). They’ll ask you for your UTR (Unique Taxpayer Reference) and National Insurance number up-front. They send HMRC the list of subbies they paid and how much they deducted.

They’re legally required to send you a Payment and Deduction Statement (CIS25) within 14 days of the end of each tax month — showing what they invoiced, what they deducted, what they paid you. Keep every one of these. They’re what lets you reclaim the deductions at year-end.

How to reclaim the deductions

On your Self Assessment (or corporation tax return if you’re a limited company), you offset the CIS deductions against the tax you owe for the year. If you’ve overpaid — which you usually have, unless your profit margin is eye-watering — HMRC refunds the difference.

Refunds typically take 4-12 weeks from submission. File early in the tax year to get yours sooner.

The paperwork that wrecks people

CIS fails when the CIS25 statements go missing. You’re chasing a reclaim at year-end for £8,000 of deductions and the contractor’s out of business, or the statements never arrived, or you filed them in a shoebox and your dog ate them. No paperwork means no reclaim.

The answer is to photograph every CIS25 the day you get it. Holdfort captures them from a photo — vendor, date, gross, deduction, net — and keeps them in one place, ready to hand to your accountant at year-end.

If you’re a building subcontractor and any of the above has ever bitten you, start with the Holdfort for builders page.

Getting Gross Payment Status — the step-by-step

Gross Payment Status means contractors pay you the full invoice, no CIS deduction, and you deal with all the tax on your annual return. The cashflow difference is huge: on £60,000 of CIS-subject work a year, you’re holding £12,000 for yourself to manage rather than HMRC holding it on account.

Application process:

1. Check you qualify. Sole trader needs £30,000+ construction turnover (excl. VAT and materials) in the 12 months before application. Limited company needs £30,000 per director or £100,000 total. Compliance-wise, you must have been on time with all HMRC filings and payments for 12 months.
2. Apply via your Business Tax Account. Log in at gov.uk HMRC online, navigate to CIS, click Apply for Gross Payment Status.
3. HMRC runs the three tests. Business test (you run a real business with a bank account), turnover test (see thresholds above), compliance test (12 months clean filing record). They take 2-8 weeks.
4. If refused, the refusal letter tells you which test you failed. Compliance failures can be re-applied after 12 months of clean filings. Turnover failures require waiting until turnover genuinely qualifies.

What a CIS25 statement actually looks like

Every month your contractor paid you, they’re legally required to give you a Payment and Deduction Statement (CIS25) within 14 days of the tax month end. It must show:

• Contractor’s name, address, UTR, and Employer Reference
• The tax month the statement covers (a tax month runs 6th-5th)
• Your name and UTR (as subcontractor)
• Gross amount of payment (excluding VAT)
• Cost of materials you supplied (not deducted from)
• CIS rate applied (20% / 30% / 0%)
• CIS amount deducted

Missing statements = missing reclaim. At year-end, HMRC reconciles your claimed CIS deductions against what contractors actually reported. If a contractor never filed their CIS300 for a month you worked, your claim for that month sticks until it’s resolved.

Worked reclaim example

Sole-trader electrician, tax year 2026-27:

• Total CIS-subject invoices: £65,000 (net of VAT and materials)
• CIS deducted by contractors (20% verified): £13,000
• Other business expenses: £14,500
• Taxable profit: £50,500
• Income tax + NI owed: ~£10,200
• Less CIS already paid on account: £13,000
• Refund owed: £2,800

File the SA100 as early as you can in the tax year (April onwards). Refunds typically land 4-12 weeks after submission. File in January and you’re queuing behind everyone else’s paperwork.

What to do if a contractor goes bust mid-year

If a main contractor goes into liquidation owing you CIS statements or unpaid invoices:

• Register as a creditor with the insolvency practitioner — your unpaid invoice is an unsecured debt, typically pennies-in-the-pound.
• For the CIS reclaim, HMRC can still honour it if you have bank records proving payment net of 20% deduction, even without a formal CIS25. Send the bank statements + your invoice copy to your tax office with a covering letter.
• Don’t write off the CIS deductions — HMRC holds them regardless of what the contractor did with their CIS300 filings.