CIS, explained
without the jargon.

Who does CIS apply to?

It applies to construction work in the UK, between a contractor and a subcontractor. The words matter: a contractor here is anyone who pays someone else to do construction work, and a subcontractor is anyone paid to do it. Most sole traders on site are subcontractors; the moment you pay another trade to help you, you are also a contractor.

The scheme covers site preparation, alterations, dismantling, construction, repairs, decorating and demolition. It does not cover architecture and surveying, carpet fitting, scaffolding hire without labour, or delivering materials.

Businesses outside construction can still be pulled in if they spend heavily enough on construction work — the deemed contractor rules. Uncommon for a small business, but worth knowing the rule exists.

What gets deducted, and from what?

The deduction comes off the labour element only. Materials the subcontractor actually paid for, VAT, plant hire and certain consumables come out of the figure first — which is why an invoice that separates labour from materials is paid correctly and one that lumps them together usually is not.

Registering as a subcontractor takes the deduction from 30 percent to 20 percent. That is a third of your cash flow, for a form. Gross payment status removes the deduction entirely but has turnover and compliance tests attached.

Since the domestic reverse charge came in, VAT on most construction services between VAT-registered businesses in the CIS chain is accounted for by the customer rather than charged by the supplier. It sits alongside CIS rather than replacing it, and it catches people out separately.

What does a contractor have to do?

• —Verify every new subcontractor with HMRC before the first payment — that verification is what tells you which rate to use.
• —Deduct at the verified rate from the labour element of each payment.
• —File a monthly CIS return by the 19th after the end of the tax month, even in months where you paid nobody, unless you have told HMRC the scheme is inactive.
• —Pay the deductions over by the 22nd if paying electronically, the 19th if by post.
• —Give each subcontractor a payment and deduction statement within 14 days of the end of the tax month.

How does a subcontractor get the money back?

The deductions are advance payments against your own tax bill, not a separate tax. A sole trader claims them on the Self Assessment return, where they are set against income tax and National Insurance for the year, and anything over is refunded.

A limited company reclaims them through the payroll scheme rather than the corporation tax return — set against PAYE liabilities each month, with a claim at the year end for the balance.

Either way the statements are the evidence. Keep every one, because reconstructing a year of deductions from bank credits is genuinely painful and HMRC will want the paperwork before releasing a refund.

The structural effect for subcontractors is that CIS front-loads your tax. Cash flow is tighter through the year and the bill is smaller at the end — fine as long as you have planned around it rather than discovered it.