CIS deductions explained
Quick answer
The Construction Industry Scheme (CIS) requires contractors to deduct tax at source from subcontractor payments in the construction industry. Registered subcontractors get 20% deducted, unregistered get 30%. Deductions count as advance payment of Income Tax and are reclaimed via Self Assessment. Expenses reduce taxable profit before calculating the final tax bill.1
How CIS works
Contractors deduct 20% (registered) or 30% (unregistered) from payments to subcontractors. The contractor pays the deduction to HMRC. The subcontractor receives 70% or 80% of the invoice amount.1
Example
You invoice £10,000. Contractor deducts £2,000 (20%). You receive £8,000. The £2,000 is paid to HMRC as advance tax payment on your behalf.
How expenses affect CIS
CIS deductions are based on gross payment (before expenses). When you complete Self Assessment, you calculate profit after expenses, then tax due. CIS deductions are credited against the tax bill. If deductions exceed tax owed, you get a refund.1
Example
Income: £50,000. CIS deducted: £10,000. Expenses: £15,000. Profit: £35,000. Tax due on £35k: ~£4,500. You get a refund of £5,500 (£10k deducted minus £4.5k owed).
Registration
Register for CIS to get the 20% rate (not 30%). Registration is free. Apply via HMRC CIS online service.2
Record-keeping
Keep CIS deduction statements from contractors. Enter total CIS suffered on Self Assessment (SA103S). Keep records for 5 years.2