CIS explained: why tax may be deducted before you’re paid
If you work in construction, the money that reaches your account may be less than the invoice total because of the Construction Industry Scheme, or CIS.
The amounts taken off are normally advance payments towards your tax and National Insurance. They aren’t a separate extra tax. HMRC: CIS for subcontractors.
Check your role and registration
You might be a subcontractor doing construction work for a contractor, a contractor paying subcontractors, or both. Contractors’ obligations and subcontractor registration are separate from simply registering for Self Assessment.
For subcontractors, the usual deduction rate is 20% when registered and 30% when not registered. Businesses that qualify can apply for gross payment status, which means payments arrive without CIS deductions. Gross status doesn’t make the eventual tax bill go away. HMRC: subcontractor overview, CIS overview.
Keep the deduction statements
Is the deduction just a percentage of the full invoice? Not always. Under the deduction rules, VAT is treated separately, and so are qualifying costs such as materials the subcontractor paid for directly. Keep your invoices and the contractor’s payment and deduction statements so you can check the figures match up. HMRC: CIS deductions.
If you’re a sole trader, report the relevant gross income (before CIS deductions), expenses and deductions in Self Assessment. The deductions are taken off the amount you owe. You may owe more or get a repayment. A refund isn’t guaranteed. Limited companies use a different route to reclaim or offset CIS deductions. HMRC: paying tax and reclaiming deductions.
Don’t let deductions replace your tax plan
Keep estimating what you’ll owe in the end, and compare it with what’s already been deducted. Otherwise, it’s easy to assume that every payment arriving after CIS deductions is yours to spend.
Check employment status too. Being registered for CIS doesn’t prove that someone is self-employed for a particular job. Employees are dealt with through payroll, not as CIS subcontractors. HMRC: subcontractor status.
