The Construction Industry Scheme makes contractors deduct money from what they pay subcontractors and hand it to HMRC as an advance on the subcontractor's Income Tax and National Insurance. It is set out in Part 3 of the Finance Act 2004. The subcontractor reclaims or offsets the deduction later through Self Assessment, so it works as a prepayment of tax rather than a separate charge.
What rate does a contractor deduct under CIS?
| Status | Deduction | When it applies |
|---|---|---|
| Registered and verified | 20% | Subcontractor is registered with HMRC for CIS |
| Not registered | 30% | Subcontractor has not registered or cannot be verified |
| Gross payment status | 0% | Subcontractor passed the turnover and compliance tests |
What is a CIS payment and deduction statement?
The contractor must give each subcontractor a statement within 14 days of the end of the tax month, showing the gross payment, the cost of materials, and the amount deducted. Under SI 2005/2045 this statement is the subcontractor's proof of tax already paid, so it matters as much as a payslip does to an employee. Keep every one for the Self Assessment claim.
How do you qualify for gross payment status?
Pass three HMRC tests: a business test (you do construction work in the UK through a bank account), a turnover test (net construction turnover of at least £30,000 per partner or director, or £100,000 for the whole business), and a compliance test (tax and returns filed on time). Pass all three and contractors pay you in full, with no deduction at source.
How is CIS different from the VAT reverse charge?
Two separate rules that often apply to the same job. CIS handles Income Tax deductions; the VAT domestic reverse charge moves the VAT accounting to the customer on most construction services since March 2021. A subcontractor can face both at once. Use the CIS reverse-charge checker to confirm which VAT treatment a specific supply needs.
Primary sources
- Finance Act 2004, Part 3 (Construction Industry Scheme) — legislation.gov.uk — Sections 57–77, the statutory basis of CIS
- Income Tax (Construction Industry Scheme) Regulations 2005 (SI 2005/2045) — legislation.gov.uk — Deduction rates, statements, and verification mechanics
- What you must do as a CIS subcontractor — gov.uk — HMRC guidance on 20% / 30% deductions and gross payment status
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