What is CIS?
Under the Construction Industry Scheme, a contractor paying a subcontractor for construction work has to deduct tax at source and pay it directly to HMRC. The subbie gets the net amount and claims the deduction back through self assessment or corporation tax.
The three rates
- 0% — for subbies with Gross Payment Status (you have to apply and meet turnover thresholds).
- 20% — for subbies registered under CIS (the default).
- 30% — for subbies who haven't registered. Avoidable — register and save 10% instantly.
Who counts as a contractor vs subcontractor?
It's situational, not a fixed badge. On most jobs you'll be a subbie (working for a main contractor). On others you'll be the contractor (using subbies of your own). You can be both in the same week.
What's deducted from?
CIS is only deducted from the labour element of an invoice. Materials, plant hire, fuel and CITB levy are excluded. That's why CIS invoices have to itemise labour and materials separately:
Labour ........................... £2,000.00
Materials ........................ £ 800.00
--------
Subtotal ......................... £2,800.00
Less CIS @ 20% on labour ......... £ -400.00
--------
NET PAYABLE ...................... £2,400.00What about VAT?
If both you and the contractor are VAT-registered, the reverse charge usually applies on top of CIS. The customer accounts for the VAT; you don't add it to the invoice.
Common mistakes
- Not registering — losing 10% on every invoice forever.
- Forgetting to split labour and materials — contractors will refuse the invoice.
- Missing the 19th of the month deadline for monthly contractor returns — £100 fine each time.
- Ignoring CIS as a contractor — HMRC will eventually catch up via your subbie's tax return.