CIS for subcontractors: deductions, refunds and records

Key takeaways

Under CIS, contractors deduct 20% from a registered subcontractor's labour, 30% if the subcontractor is not registered, and nothing if they hold gross payment status.
Deductions are taken from labour only; VAT and materials you paid for are not subject to CIS deduction.
Your contractor must give you a payment and deduction statement within 14 days of the end of each tax month, which runs to the 5th.
Sole traders and partners reclaim CIS deductions through their Self Assessment return, due online by 31 January after the tax year.
Limited companies offset deductions through the Employer Payment Summary (EPS) and claim any surplus after 5 April; HMRC usually responds within 8 weeks.
Gross payment status needs at least £30,000 of construction turnover in the last 12 months for a sole trader, excluding VAT and materials.
Since 6 April 2026, HMRC can remove gross payment status immediately for fraud-linked payments, with a 5-year ban on reapplying and a 30% penalty.

As a CIS subcontractor, the contractor paying you takes 20% off the labour part of each payment and sends it to HMRC, or 30% if you have not registered. These deductions are advance payments of your tax and National Insurance, so you claim them back through Self Assessment or, for a company, through payroll. Businesses with enough turnover and a clean record can apply for gross payment status and be paid in full.

Who needs to register as a CIS subcontractor?

You should register if you do construction work for a contractor as a sole trader, a partner, or through your own limited company. Employees do not register.

If you do not register, you suffer 30% instead of 20%. Subcontractors based abroad should still register if they work on UK construction sites, according to HMRC’s guide What you must do as a CIS subcontractor.

How to register for CIS

Get a UTR. You need a Unique Taxpayer Reference. If you are new, register for Self Assessment as a new business and choose “working as a subcontractor”. Our guide to finding your UTR helps if you have one already.
Gather your details. Legal business name, any trading name, VAT number if registered, and your trading start date. You may also need your National Insurance number or company registration number.
Register online. This is the quickest route and puts you on net payment status (20%). Postal forms exist for sole traders, partnerships and companies.
Give your contractor the exact details. Your UTR and the name you registered must match, or verification fails and you may suffer 30%.

How are CIS deductions worked out?

The contractor deducts CIS from the labour element of your invoice, not the whole amount.

Item on invoice	CIS deduction?
Your labour	Yes
Materials you bought for the job	No
VAT	No
Plant hired for the job	No
Consumable stores	No

Keep receipts for materials. If the contractor asks for evidence and you cannot provide it, they estimate the cost.

Example. You invoice £2,000 for labour plus £500 for materials. At 20%, the contractor deducts £400 and pays you £2,100. The £400 is credited to your tax.

If you are VAT registered, the domestic reverse charge usually applies to CIS work, so the contractor accounts for the VAT. See our guide to the VAT reverse charge.

What records must you keep?

You must keep every monthly payment and deduction statement. Your contractor must issue one within 14 days of the end of each tax month, and HMRC may ask to see them.

Keep these records as a checklist:

payment and deduction statements from every contractor
copies of your invoices showing labour and materials separately
receipts for materials, plant hire and consumables
bank statements showing payments received
for companies, form CIS132 records

If a contractor will not give you statements, write to HMRC at PT Operations, HM Revenue and Customs, BX9 1BX.

How do you claim CIS refunds?

How you reclaim deductions depends on how your business is set up.

Sole traders and partners

Enter your gross pay before deductions as income on your Self Assessment return, and your total deductions in the “CIS deductions” box. HMRC sets the deductions against your tax and Class 4 National Insurance. Any balance is due by 31 January; any overpayment is refunded.

Many subcontractors are due a refund because 20% of labour exceeds the tax on profit after expenses. Filing soon after 5 April gets the money back sooner. If you stop trading mid-year, use form CIS40 (sole trader) or CIS41 (partner). The self-employed take-home calculator estimates your tax bill.

Limited companies

Companies reclaim CIS through payroll, not the Company Tax Return:

Send your Full Payment Submission as usual.
Send an Employer Payment Summary with your CIS deductions for the year to date.
HMRC offsets the deductions against your PAYE bill. Pay any balance on time.
Carry any unused deductions forward within the tax year.
After 5 April, claim any surplus online through HMRC’s company refund service.

You must have filed all FPS, EPS and Company Tax Returns first. HMRC says it usually responds within 8 weeks, and claims can be made online for the past 6 tax years. Using the Corporation Tax return to settle tax with CIS deductions may lead to a penalty.

Can you get gross payment status?

Gross payment status means contractors pay you without deductions. You must pass three tests: you have paid tax on time, you do construction work in the UK, and you run the business through a bank account.

You also need enough construction turnover in the last 12 months, excluding VAT and materials:

Business type	Turnover needed
Sole trader	£30,000
Partnership	£30,000 per partner or £100,000 total
Limited company	£30,000 per director or £100,000 total

If a company is controlled by 5 or fewer people, each must meet £30,000. HMRC reviews your status every year. If it is withdrawn, you get 90 days’ notice and 30 days to appeal, and you must wait a year to reapply.

What changed for CIS in April 2026?

HMRC’s fraud policy paper of 26 November 2025 brought in tougher rules from 6 April 2026. Where a business knew or should have known a payment was linked to fraud, HMRC can:

cancel gross payment status immediately
bar the business from reapplying for 5 years, up from 1
charge a penalty of 30% of the lost tax, including to directors

Contractors must also file nil returns again from 6 April 2026 unless they tell HMRC in advance. Our guide to CIS for contractors covers their side.

What to do now

Check every contractor has verified you at 20%, not 30%.
Reconcile statements against your bank account each month.
File your 2025/26 return early if you expect a refund; the deadline is 31 January 2027.
If you are near £30,000 turnover, review whether gross status suits your cash flow.

For queries, see our page on the HMRC CIS helpline.

Frequently asked questions

What percentage is deducted under CIS?

Contractors deduct 20% from registered subcontractors and 30% from unregistered ones. Subcontractors with gross payment status have no deduction.

Is CIS deducted from materials?

No. Deductions apply only to labour. Materials you paid for, plant hire, consumables and VAT are excluded.

How do I get my CIS tax back as a sole trader?

Claim it on your Self Assessment return by entering your total CIS deductions. HMRC refunds any amount deducted above your tax and National Insurance bill.

How long does a CIS refund take for a limited company?

HMRC says it usually responds to a limited company refund claim within 8 weeks. You can only claim once the tax year has ended on 5 April.

Sources

Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance on 6 November 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.