CIS Deductions Explained for Builders (2026 Guide)
A plain-English guide to CIS deductions for UK builders and subcontractors. Understand the 20% and 30% rates, what counts as materials, how to claim refunds, and the April 2026 Making Tax Digital changes.
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⬇ Download Free CIS Deduction Calculator (Excel) — Enter your invoice amount, materials cost, and CIS rate to instantly calculate your deduction and net payment. Includes a monthly tracker to log all CIS deductions across the tax year.
What Is the Construction Industry Scheme (CIS)?
If you work in construction in the UK — whether you're a sole trader, a small builder, or running a limited company — the Construction Industry Scheme affects how you get paid and how you pay others.
In simple terms, CIS is an HMRC scheme that requires contractors to deduct tax from payments to subcontractors before paying them. Those deductions get sent to HMRC and count as advance payments towards the subcontractor's income tax and National Insurance bill.
Think of it like PAYE for self-employed construction workers — except you're still self-employed, you still do a Self Assessment tax return, and the deductions are just payments on account.
Who Counts as a Contractor? Who's a Subcontractor?
This is where it gets confusing for a lot of builders, because you can be both at the same time.
You're a contractor if you pay other self-employed people to do construction work for you. Even if you're a one-man-band who brings in a mate to help on a big job — technically, you're acting as a contractor for that payment.
You're a subcontractor if a contractor pays you to carry out construction work. Most tradespeople working on someone else's site fall into this category.
You can be both. Say you're an electrician hired by a builder to wire an extension. You're a subcontractor to that builder. But if you then bring in another spark to help you finish faster, you're now also a contractor and need to operate CIS on your payments to them.
The Three CIS Deduction Rates
When a contractor pays a subcontractor, HMRC tells them which rate to deduct:
20% — Registered subcontractor. This is the standard rate. If you've registered for CIS with HMRC, your contractor deducts 20% from the labour portion of your invoice and sends it to HMRC on your behalf.
30% — Unregistered subcontractor. If you haven't registered for CIS, the contractor must deduct 30%. That's a significant hit to your cash flow, so registration is almost always worth doing.
0% — Gross payment status. If you've applied to HMRC and been approved for gross payment status, you get paid the full amount with no deductions. You still need to pay your tax — you just handle it yourself through Self Assessment. Gross payment status has strict qualifying conditions and HMRC can revoke it.
What Gets Deducted and What Doesn't
This is a really common point of confusion. CIS deductions only apply to the labour element of a payment. They do not apply to:
So if you invoice a contractor for £5,000 — made up of £3,500 labour and £1,500 materials — the 20% CIS deduction applies only to the £3,500 labour portion. That's £700 deducted, not £1,000.
Practical example:
| Invoice item | Amount |
|---|---|
| Labour | £3,500 |
| Materials | £1,500 |
| Gross invoice | £5,000 |
| CIS deduction (20% of labour) | -£700 |
| Amount you receive | £4,300 |
The £700 goes to HMRC and gets credited to your tax account.
How to Register for CIS
If you're a subcontractor, you register online through your HMRC Government Gateway account. You'll need your UTR (Unique Taxpayer Reference) and National Insurance number.
If you're a contractor (i.e. you pay subcontractors), you must register separately as a CIS contractor. Before making any payment to a subcontractor, you need to verify them with HMRC — this tells you which deduction rate to apply.
CIS and VAT Reverse Charge
Since March 2021, most business-to-business construction supplies between VAT-registered, CIS-registered businesses are subject to the domestic reverse charge. This means the subcontractor does NOT charge VAT on their invoice — instead, the contractor accounts for the VAT under reverse charge rules.
This only applies to supplies that are reported under CIS and where both parties are VAT-registered. If you're not VAT-registered, the reverse charge doesn't affect you.
What's Changing in April 2026: Making Tax Digital
This is the big one. From April 2026, CIS is being incorporated into Making Tax Digital (MTD) for Income Tax. Here's what that means in practice:
Quarterly digital reporting — Instead of the current monthly CIS returns, contractors will need to submit quarterly digital reports using HMRC-approved software.
Real-time digital record-keeping — All CIS statements, expenses, materials costs, and deductions need to be captured digitally as they happen. No more keeping receipts in a shoebox and sorting them out at year end.
End of Period Statement — At the end of the year, you'll submit an End of Period Statement (EOPS) summarising your annual liability.
NIL returns are coming back — If you're a contractor and you haven't paid any subcontractors in a given period, you'll need to either submit a NIL return or pre-notify HMRC that no payments are being made.
Gross payment status scrutiny — From April 2026, HMRC will have stronger powers to immediately remove gross payment status if they believe a business was knowingly part of a tax-fraudulent supply chain.
How to Claim Back CIS Overpayments
If you're a subcontractor, CIS deductions are advance payments on your tax. When you file your Self Assessment tax return, you report your total gross income and then enter the total CIS deductions that were made. If the deductions exceed your actual tax liability, HMRC will refund the difference.
Key tip: Keep all your payment and deduction statements (PDS) from contractors. You'll need these to prove how much CIS was deducted. Contractors are required to issue these within 14 days of the end of each tax month.
If you're a limited company, CIS deductions are offset against your PAYE liabilities, National Insurance, and corporation tax — reported through your Employer Payment Summary (EPS).
How BuildScope Handles CIS
BuildScope has CIS deductions built into its invoicing system. When you create an invoice, you can apply either the 20% or 30% CIS deduction rate, and the invoice automatically calculates the correct amounts — separating labour from materials, applying the deduction to labour only, and showing the net payment clearly.
Your client receives a professional invoice that clearly breaks down the CIS deduction, making it easy for both parties to keep accurate records.
Related: See how BuildScope works for builders.