Understanding CIS Deductions: A Guide for Subcontractors

If you work in the construction industry as a subcontractor, you've likely come across the term CIS — the Construction Industry Scheme. But what exactly does it mean for your pay, and how can you make sure you're not overpaying or underpaying tax? This guide breaks it all down in plain English.

What Is CIS?

The Construction Industry Scheme (CIS) is a HMRC tax scheme that applies to contractors and subcontractors working in the UK construction industry. Under CIS, contractors are required to deduct money from a subcontractor's payments and pass it directly to HMRC. These deductions count as advance payments towards the subcontractor's tax and National Insurance contributions.

Who Does CIS Apply To?

CIS applies to most construction work carried out in the UK, including:

• Site preparation and groundwork

• Building and demolition work

• Alterations, repairs, and decorating

• Installing systems such as heating, lighting, and ventilation

• Scaffolding and civil engineering

CIS Deduction Rates Explained

The rate of deduction depends on your registration status with HMRC:

• Registered subcontractors: 20% deduction

• Unregistered subcontractors: 30% deduction

• Gross payment status (approved by HMRC): 0% deduction

Registering for CIS is straightforward and can save you a significant amount of money — moving from a 30% to a 20% deduction rate makes a real difference to your take-home pay.

What Are Deductions Applied To?

CIS deductions are only applied to the labour element of your invoice — not to materials. This means if your invoice includes the cost of materials, those should be clearly separated so you're not deducted on them unnecessarily.

Can You Claim Back CIS Deductions?

Yes! CIS deductions are not a final tax — they are advance payments. When you complete your Self Assessment tax return at the end of the year, HMRC will calculate your actual tax liability. If more has been deducted than you owe, you'll receive a refund. This is why keeping accurate records throughout the year is so important.

How HES Bookkeeping Can Help

At HES Bookkeeping and Payroll Services, we specialise in CIS management for subcontractors and small construction businesses. We can help you:

• Register for CIS with HMRC

• Ensure your invoices are correctly structured to separate labour and materials

• Track your CIS deductions throughout the year

• Complete your Self Assessment and claim back any overpaid tax

• Apply for Gross Payment Status if you're eligible

Don't let CIS deductions eat into your earnings unnecessarily. Get in touch with us today for a free consultation and let us take the admin off your plate.