If you are self-employed or run a small company in the UK construction industry, the Construction Industry Scheme (CIS) will almost certainly treat you as a subcontractor. This means that when a contractor pays you, they will usually deduct tax from your payment and send it directly to HM Revenue & Customs (HMRC).
For many subcontractors, this can be confusing. Why is money being taken off my pay? And how do you get it back if you have paid too much?
Why Does a Contractor Deduct Tax from Your Pay?
Under CIS rules, contractors must deduct a percentage of your pay and send it to HMRC. This is not the contractor’s choice; it is a legal obligation. HMRC treats these deductions as advance payments towards your end-of-year tax and National Insurance bill.
Think of it as a form of Pay As You Earn (PAYE) for the construction industry. The scheme ensures HMRC collects tax regularly from a workforce that is often mobile and works for many different contractors throughout the year.
The Different CIS Deduction Rates
The amount of tax a contractor deducts depends on your registration status with HMRC. There are three different rates:
- 20% (The standard rate): This is the rate for subcontractors who are registered for CIS with HMRC.
- 30% (The higher rate): This is the rate for subcontractors who are not registered for CIS or haven’t yet been verified.
- 0% (Gross payment status): This is for subcontractors who have applied for and been granted “gross payment status,” which allows them to receive their payments in full, without any deductions.
As you can see, it is highly beneficial to register for CIS with HMRC to avoid the higher 30% deduction rate.
How to Get Your CIS Tax Back
This is the most important part. The CIS deductions taken from your pay are essentially pre-payments of your tax. At the end of the tax year, you need to tell HMRC how much income you have earned and how much tax your contractors have already deducted through CIS.
If the total amount of CIS tax deducted is more than your final tax and National Insurance bill for the year, you will be due a tax refund from HMRC. If the CIS deductions are less than your final bill, you will have to pay the difference.
How you do this depends on your business structure:
- If you are a sole trader, you will declare your income and CIS deductions on your annual Self-Assessment tax return. Your tax calculation will show whether you are due a refund.
- If you are a limited company, you will offset your CIS deductions against your company’s payroll liabilities (PAYE and National Insurance). If there is still an amount left over, you can claim a refund from HMRC.
It is vital that you keep the payment and deduction statements that your contractors give you each month. These are your proof of deducted tax.
Your contractor should issue these to you at the end of each CIS Return period.(6th of previous month to 5th of current month). By the 19th of the current month which is the deadline for CIS submissions.
If your contractor has not issued these to you, chase them for the documents. Your contractor has a legal duty to issue them.
When you claim a CIS refund from HMRC, they may ask for copies of your CIS deduction certificates, your CIS sales invoices, and your bank statements as evidence before they issue any refund.
What Is Gross Payment Status?
If you have a good compliance history with HMRC, you can apply for gross payment status. This allows you to receive your payments from contractors in full, with no CIS tax deducted. This can significantly improve your cash flow, as you are not waiting until the end of the year to get your tax back.
To qualify, you must pass three tests. You must be up to date with your tax obligations. You must run your business mainly through a bank account, and your turnover must meet a minimum threshold.
When Getting Advice Can Help
Managing your CIS deductions and ensuring you get the right tax refund can be a complex process. Nobody expects you to be an expert, and professional advice can help you claim back everything you are entitled to.
If you would like calm, practical support, Penney’s Accountancy works with subcontractors in Farnborough and the surrounding areas. We can help you with your Self-Assessment tax return, ensure your CIS deductions are correctly claimed, and assist you with applying for gross payment status.
Want to Learn More in Your Own Time?
For those who want to build their confidence and understand these topics in more detail, Penney’s Finance School offers an online, self-paced business and finance course. It covers everything from company setup to cash flow and tax, allowing you to learn at your own pace.
Important information
The information provided in this article is intended as general guidance for UK businesses only. Reflects UK tax legislation and HMRC guidance as of February 2026.
Tax rules and business requirements can change, and individual circumstances vary. Before acting on any of the information above, we recommend speaking to a qualified accountant who can provide advice tailored to your specific situation.