CIS Payment Flow — What Actually Lands in Your Account

What is CIS and who does it apply to?

The Construction Industry Scheme requires contractors to deduct tax from payments to subcontractors before passing the rest to them. It applies to anyone doing construction work in the UK, including building, decorating, plumbing, electrical work, and more. Both the contractor and subcontractor must be registered.

Why is 20% or 30% deducted from my payments?

The deduction is an advance payment of your tax. If you're registered with HMRC for CIS, the rate is 20%. If you're not registered, it's 30%. The deductions are credited against your tax bill when you file your return. If you've had more deducted than you owe, you get a refund.

How do I get gross payment status?

You can apply if you meet three conditions: your business must have a minimum turnover (£30,000 for sole traders), you must be up to date with all tax obligations, and you must have paid all taxes on time for the previous 12 months. Gross payment status means no deductions — but you must still pay the correct tax through Self Assessment or Corporation Tax.

Why aren't materials deducted?

CIS deductions only apply to the labour portion of a payment. Materials costs are exempt. Your invoices should clearly separate labour and materials. If they don't, the contractor may deduct from the full amount — so proper invoicing directly affects your cash flow.

Can I claim back CIS deductions?

Yes. As a sole trader, deductions are credited against your Self Assessment tax bill. If your total deductions exceed your tax liability, you receive a refund. As a limited company, CIS deductions are offset against your PAYE, NIC, and Corporation Tax liabilities. Many subcontractors are owed refunds and don't realise it.