Your first week on site comes with a lot to take in. Where to park, who to report to, which card you need to get through the gate, and somewhere in among all that, someone hands you a form and asks for your UTR number. If you have no idea what that means, you are in good company. Most people arrive in construction without anyone having explained the tax side, and they work it out through a mixture of guesswork and advice from whoever is standing nearest.
The Construction Industry Scheme, usually shortened to CIS, is the system HMRC uses to collect tax from self employed people working in construction. The short version is this: the business paying you takes a slice of your money before it reaches you and sends it to HMRC on your behalf. At the end of the tax year, that gets balanced against what you actually owe.
That is CIS explained simply, and if you remember nothing else, remember that. Everything else in this guide is detail built on top of that one idea.
This article is written for people who are new to the industry: apprentices going self employed, labourers taking their first subcontract work, tradespeople who have always been on the books and are now going out on their own, and anyone changing career into construction. No prior knowledge is assumed and every term is explained as it comes up.
One thing to be clear about before we start. This is general guidance, not tax advice. Your own situation may raise questions this article cannot answer, so where real money is involved, check the current position on GOV.UK or speak to a qualified accountant.
Table of Contents
- What Is the Construction Industry Scheme (CIS)?
- Why Was CIS Introduced?
- Who Needs to Register for CIS?
- Who Does Not Need CIS?
- How First-Time Construction Workers Get Started
- How CIS Registration Works
- Understanding CIS Tax Deductions
- What Happens After You Get Paid?
- What Documents Should You Keep?
- Common Beginner Mistakes
- Tips for Staying HMRC Compliant
- Frequently Asked Questions
- Final Thoughts
What Is the Construction Industry Scheme (CIS)?
CIS is a set of HMRC rules that apply when one business pays another business or person for construction work in the UK.
Under normal circumstances, if you send someone an invoice for £600, they pay you £600 and you sort out your own tax later. Under CIS, that does not happen. The business paying you holds back a percentage, usually 20%, and sends it directly to HMRC. You receive £480 and HMRC receives £120.
Two words come up constantly, so it helps to get them straight now:
- Contractor. The business paying you for construction work. This might be a large main contractor, a small building firm, or even a one man band who has taken you on to help.
- Subcontractor. You, if you are being paid to do construction work by a contractor.
The labels describe what you are doing on a particular job, not how big your business is. A self employed carpenter is a subcontractor when invoicing a builder. If that same carpenter brings in a labourer and pays them, the carpenter has just become a contractor as well, with a set of legal duties attached.
The most important thing to understand about the deduction
The money taken off your payment is not a fee, a charge, or a tax you would not otherwise pay. It is an advance payment towards the income tax and National Insurance you will owe on your profits.
Think of it as HMRC collecting your tax bill in instalments through the year instead of waiting until the end. When you do your tax return, everything already deducted counts towards what you owe. If too much has been taken, which is very common for people with tools, van costs and other expenses, the difference comes back to you as a refund.
Why Was CIS Introduced?
Construction has always worked differently from most industries. People move between sites and between employers, jobs are often short, and cash has historically played a bigger part than elsewhere. That made it unusually easy for income to go unreported, whether deliberately or through disorganisation.
HMRC’s answer was to collect the tax closer to the source. Rather than relying on every self employed tradesperson to put money aside and settle up at the end of the year, the scheme puts the obligation on the business making the payment. Contractors tend to be larger, better organised and easier for HMRC to keep track of than someone working across four sites in a month.
There is a genuine upside for workers too, even though it rarely feels like one when you see the deduction on your first payment.
- Your tax is paid gradually instead of landing as one large bill in January.
- You are far less likely to reach the end of the year with a liability you cannot cover.
- Many subcontractors with normal work expenses end up having overpaid, and receive money back.
- You build a documented record of your earnings, which matters when applying for a mortgage or a loan.
That last point catches people out. Lenders want to see declared income, and CIS statements plus tax returns give you exactly that. Working cash in hand feels better in the moment and closes doors later.
Related: Construction Site Entry Requirements in the UK
Who Needs to Register for CIS?
If you are a subcontractor
Registering as a subcontractor is not legally compulsory, but choosing not to is an expensive decision. Unregistered workers have 30% taken off instead of 20%.
On £600 of labour, that is £180 gone instead of £120. Over a working year, the difference easily runs into thousands of pounds sitting with HMRC rather than in your account. You get it back eventually through your tax return, but you spend the year short.
Registration is free and usually takes a few days. There is no sensible reason to skip it.
If you are a contractor
Registering as a contractor is compulsory. If you pay anyone else for construction work, even one labourer for a fortnight, you must register with HMRC before you make the first payment.
Being a contractor comes with real duties: checking your subcontractor with HMRC before paying them, taking the right deduction, filing a return every single month, issuing statements, and paying HMRC on time. This catches out plenty of newly self employed tradespeople who take on help without realising what it triggers.
The two roles compared
| Question | Subcontractor | Contractor |
|---|---|---|
| Who are you? | You do the work and get paid | You pay someone else to do the work |
| Must you register? | No, but 30% is taken if you do not | Yes, before your first payment to anyone |
| Who takes the deduction? | The contractor takes it from you | You take it from your subcontractor |
| Monthly returns to HMRC? | No | Yes, every month without exception |
| Annual tax return? | Yes | Yes |
Plenty of established businesses are both at once, invoicing a main contractor while paying their own subcontractors. If that is where you are heading, our guide CIS Explained goes into both sides in more depth.
Who Does Not Need CIS?
A fair amount of confusion comes from people assuming CIS applies to anyone who sets foot on a building site. It does not.
Employees
If you are employed, you are on PAYE, not CIS. Your employer takes tax and National Insurance from your wages, and you get holiday pay, sick pay, pension contributions and employment rights.
This distinction matters enormously, and we come back to it later, because being put on CIS when you should be an employee is one of the most common problems new construction workers face.
Non construction work
Several jobs happen on or around sites without being covered by the scheme:
- Architecture, surveying and consultancy
- Delivering materials to site
- Hiring out scaffolding with no labour supplied
- Carpet fitting
- Making components or plant off site
- Running the canteen, security office or medical room
Work outside the UK
The scheme covers construction work carried out in the UK. Work done abroad falls outside it, although a business based overseas doing construction work here is generally caught by it.
Common misconceptions worth clearing up
- “CIS registration makes me self employed.” It does not. Your employment status depends on how you actually work, not on which scheme you are paid through.
- “I need a CSCS card to register for CIS.” No. A CSCS card proves you have the training and safety awareness to be on site. CIS is a tax matter. You will probably need both, but they are unrelated.
- “CIS is only for big jobs.” There is no minimum value. It applies to a day’s work as much as a year long contract.
- “Once tax is deducted, I have nothing more to do.” This is the most costly misunderstanding of the lot. You still have to file a tax return.
- “CIS is a special construction tax.” It is not a tax at all. It is a way of collecting the income tax and National Insurance you already owe.
How First-Time Construction Workers Get Started
Here is the whole journey, from deciding to go self employed through to your first payment landing.
Step 1: Work out whether you are genuinely self employed
Do this before anything else, because everything that follows depends on it. Broadly, you are more likely to be genuinely self employed if you control how and when you work, can turn down jobs, supply your own tools, could send someone else in your place, and stand to lose money if a job goes wrong.
If someone tells you when to turn up, supervises you all day, provides everything you use and would not accept a substitute, that looks a lot like employment regardless of what the paperwork says.
Step 2: Register as self employed with HMRC
You register for Self Assessment, which tells HMRC you will be earning money outside PAYE. You will need your National Insurance number and personal details.
There is a deadline attached. You need to register by 5 October following the end of the tax year in which you started. The tax year runs from 6 April to 5 April, so if you begin in June, you have until 5 October of the following year. Leaving it that long is a bad idea. Register when you start.
Step 3: Get your UTR number
Your Unique Taxpayer Reference is a ten digit number HMRC issues once you have registered. It identifies you for tax purposes and every contractor will ask for it.
It usually arrives by post within a couple of weeks. Photograph it, save it somewhere you will not lose it, and never guess at it when a contractor asks. A wrong digit means the contractor cannot match you with HMRC, and you get 30% deducted instead of 20%.
Step 4: Register for CIS
Separate from step 2, and only possible once you have your UTR. This is what puts you on the 20% rate rather than 30%.
Step 5: Sort out the practical side
- CSCS card. Most sites will not let you through the gate without one.
- Public liability insurance. Not a legal requirement for everyone, but most contractors insist on it before they will take you on.
- A separate bank account. Not compulsory for a sole trader, but it makes your bookkeeping dramatically easier.
- Tools and PPE. Keep every receipt. These reduce your tax bill.
- A way to invoice. A simple template is fine to begin with.
Step 6: Give the contractor your details
Before your first payment, the contractor has to verify you with HMRC. They need your exact legal name (not a trading name), your UTR, and your National Insurance number.
HMRC matches on exact information, so send it in writing rather than reading it out over the noise of a site.
Step 7: Invoice properly
Your invoice should show labour and materials as separate lines. This matters more than beginners realise, and we cover why in the next section.
Step 8: Get paid, and check the statement
You receive your payment with the deduction already taken. Within 14 days of the end of the tax month, the contractor should send you a payment and deduction statement confirming what was paid and what was withheld. Keep it. Every single one.
Related: Understanding Tax Deductions and Payments in the Construction Industry
How CIS Registration Works
The process itself is straightforward once you have the right information to hand.
What you need before you start
- Your National Insurance number
- Your UTR number
- Government Gateway login details, which you create if you do not have them
- Your business name if you trade under one, and your address
- Contact details
Registering as a sole trader
- Register for Self Assessment with HMRC if you have not already.
- Wait for your UTR to arrive.
- Sign in to your Government Gateway account.
- Register as a CIS subcontractor using your UTR and National Insurance number.
- Wait for confirmation from HMRC.
- Give your details to contractors so they can verify you.
Registering as a limited company
Companies register using the company UTR and company registration number rather than personal details. The reclaim process is also different: companies recover their deductions through payroll rather than through a personal tax return, which is a genuinely important distinction and one worth getting advice on before you incorporate.
A note on gross payment status
You will hear people talk about gross payment status, which means being paid in full with no deduction at all. It is worth knowing about, but it is not something a beginner will qualify for.
HMRC requires a minimum level of construction turnover, a business bank account, and a clean record of filing and paying on time over a sustained period. That is a target for two or three years down the line, not your first month.
Understanding CIS Tax Deductions
Three rates exist, and which one applies to you depends entirely on your position with HMRC.
| Rate | Who gets it | What it means |
|---|---|---|
| 20% | Registered under CIS and verified successfully | One fifth of your labour goes to HMRC |
| 30% | Not registered, or your details did not match HMRC records | Nearly a third of your labour goes to HMRC |
| 0% | Holding gross payment status | You are paid in full and settle your tax later |
What the deduction is actually taken from
This is the part most beginners get wrong, and it costs them money.
CIS is only taken from your labour. It is not taken from VAT, from the genuine cost of materials you paid for, from consumable items used up on the job, or from plant you hired in from someone else.
But the contractor can only exclude materials if your invoice shows them separately. If you write “kitchen fitting, £1,200” on your invoice when £400 of that was units and fixings, the deduction gets applied to the whole £1,200.
Simple example one: labour only
You work a week on site as a labourer and invoice £600, all labour, no materials.
| Item | Registered (20%) | Not registered (30%) |
|---|---|---|
| Invoice amount | £600.00 | £600.00 |
| Deduction taken | £120.00 | £180.00 |
| You receive | £480.00 | £420.00 |
Sixty pounds a week difference, purely from not spending twenty minutes registering.
Simple example two: labour and materials
You fit a bathroom. Your labour is £900 and you spent £450 on materials.
| Item | Invoice shows the split | Invoice shows one total |
|---|---|---|
| Total invoiced | £1,350.00 | £1,350.00 |
| Materials excluded | £450.00 | £0.00 |
| Amount the 20% applies to | £900.00 | £1,350.00 |
| Deduction taken | £180.00 | £270.00 |
| You receive | £1,170.00 | £1,080.00 |
Ninety pounds, on one invoice, because of how it was written. Materials must be shown at what you actually paid, not marked up. Inflating that figure to reduce the deduction is not a clever trick, it is a false statement on a tax document.
Why you often get money back
The 20% is a rough estimate, not a calculation of what you actually owe. Your real tax bill is based on your profit, which is your income minus your allowable business expenses.
Take someone earning £30,000 in labour over a year, with £6,000 of genuine expenses covering tools, van running costs, insurance and PPE.
- £6,000 has already been deducted under CIS at 20%.
- Their taxable profit is £24,000, not £30,000, because expenses come off first.
- Part of that profit is covered by the personal allowance, on which no income tax is due.
- The income tax and National Insurance actually owed on the remainder works out lower than the £6,000 already taken.
- The difference comes back as a refund.
This is the usual pattern for self employed construction workers, and it is exactly why keeping your receipts matters. Every expense you fail to record is money you hand over unnecessarily. Rates and allowances change from year to year, so check current figures on GOV.UK rather than relying on what a mate told you last season.
What Happens After You Get Paid?
Your payment and deduction statement
Often called a CIS statement or a CIS voucher, this is the document proving what was deducted from you. Contractors must issue one for every tax month in which they took a deduction, within 14 days of that tax month ending.
It should show:
- The contractor’s name and tax reference
- The tax month it covers
- Your name and UTR
- The gross amount paid, excluding VAT
- The cost of materials taken off before the deduction
- The amount deducted
Check each one against your own invoice as it arrives. If something looks wrong, raise it straight away while the contractor’s records are current. Chasing a missing statement eight months later is far harder than asking for it the same week.
Keeping your own records
You need your own record of what you earned and what you spent, independent of anything the contractor sends you. That means invoices you issued, statements received, receipts for everything you bought, mileage or van costs, and bank statements.
A shoebox works. A folder on your phone works better. What does not work is trying to remember it in January.
Your tax return
Once the tax year ends on 5 April, you complete a Self Assessment tax return covering that year. You report your total income using the gross figures from your invoices, not the reduced amounts you actually received. Then you claim your expenses, and enter the total CIS deducted in the box provided.
HMRC works out what you owe and sets the deductions against it. Owe less than was deducted, and you get a refund. Owe more, and you pay the difference.
The online filing deadline is 31 January following the end of the tax year, but waiting until then is a mistake if you are owed money. Filing in April or May usually means your refund arrives within weeks rather than months.
Related: Common Mistakes Contractors and Subcontractors Should Avoid
What Documents Should You Keep?
| Document | Why it matters |
|---|---|
| CIS payment and deduction statements | Your proof of tax already paid. Essential for your refund |
| Copies of every invoice you issued | Establishes your gross income for the tax return |
| Receipts for tools and equipment | Allowable expenses that reduce your tax bill |
| Receipts for materials you paid for | Supports the materials figure on your invoices |
| Receipts for PPE and workwear | Protective equipment is generally allowable |
| Mileage log or van running costs | Travel between sites is usually a significant expense |
| Insurance documents | Public liability and tool insurance are business costs |
| Training and certification costs | Some are allowable, so keep them and let your accountant decide |
| Bank statements | Backs up everything else if HMRC ever asks |
| Letters from HMRC | Contain references and deadlines you will need |
Expert tip: photograph every receipt at the point of purchase, before it goes in your pocket. Thermal till receipts fade to blank within months, and a faded receipt is worth nothing. A dated folder on your phone takes seconds and saves hours.
Keep records for several years after the end of the tax year they relate to. HMRC sets the exact retention period, so check GOV.UK for the current requirement.
Common Beginner Mistakes
Not registering for CIS
The single most common and most expensive beginner error. Some people do not know they need to, others intend to and never get round to it. Either way, it means 30% instead of 20% on every payment until it is fixed.
Registering does not retrospectively change deductions already taken, but you get the excess back through your tax return. The real cost is going without that money all year.
Losing paperwork
Statements get left in vans. Receipts go through the wash. Invoices are written on whatever was to hand and never copied. Then January arrives and there is no way to prove what you earned or what you spent.
Without your expense records, you pay tax on income you should not be taxed on. Without your statements, supporting a refund claim becomes difficult if HMRC queries it.
Ignoring HMRC letters
Post from HMRC looks intimidating, so it gets put on the side and forgotten. Most of it is routine, and nearly all of it has a deadline. Ignoring a letter rarely makes the issue disappear and usually removes your chance to appeal or explain.
Open it the day it arrives. If you do not understand it, send a photo to your accountant.
Confusing employment with self employment
Being paid through CIS does not make you self employed, and it gives you no employment rights. No holiday pay, no sick pay, no notice period, no pension contributions from anyone but you.
If you are working set hours under close supervision, using someone else’s tools, unable to send a substitute and taking no financial risk, you may well be an employee in HMRC’s eyes even though you are being paid as a subcontractor. That is not a technicality. It affects your rights, your tax position, and what happens if you get injured.
If your situation feels more like a job than a business, get advice rather than assuming the paperwork settles it.
Poor bookkeeping
Mixing business and personal money in one account, never reconciling what you invoiced against what you were paid, and leaving everything until the deadline. Each on its own is survivable. Together they produce a tax return built on guesswork.
Thirty minutes a week keeps it under control. A separate bank account does most of the work for you.
Assuming the deduction settles your tax
It does not. CIS deductions are advance payments, and you still have to file a tax return. Skipping it means late filing penalties even when you are owed a refund, and it means never receiving that refund.
Giving contractors the wrong details
Using a trading name instead of your legal name, or getting a digit wrong in your UTR, causes the verification to fail. You then get 30% deducted despite being properly registered. Keep your exact details saved on your phone and send the same information every time.
Tips for Staying HMRC Compliant
Compliance sounds heavier than it is. For a subcontractor, it comes down to a handful of habits.
Do these things and most problems disappear
- Register properly and early. Self Assessment first, then CIS once your UTR arrives.
- Keep your details consistent. Same legal name, same UTR, sent in writing to every contractor.
- Split labour and materials on every invoice. Every time, without exception.
- Photograph receipts immediately. Before they fade, before they are lost.
- Check every statement on arrival. Against your own invoice, the same week.
- Use a separate bank account. Your bookkeeping becomes half the job it was.
- Set money aside. The deduction may not cover everything you owe, particularly if your expenses are low.
- File early. Right after 5 April, not in January. Your refund arrives sooner.
- Open HMRC post the day it arrives.
When to get an accountant
Plenty of subcontractors handle their own return successfully, especially in the early years when things are simple. Consider getting help if you are thinking of setting up a limited company, if you have started paying other people, if your expenses are complicated, if HMRC has raised a query, or if you simply know you will not keep on top of it otherwise.
A construction specialist accountant will typically cost a few hundred pounds a year, and will often find enough legitimate expenses to more than cover that. Ask other tradespeople on site who they use.
A word of caution
You will come across refund companies advertising large sums, sometimes taking a substantial percentage as a fee. Some are reputable. Others charge heavily for something you could do yourself, and a few submit inflated claims that leave you responsible when HMRC checks them. Read the terms carefully, and remember that you carry the liability for anything submitted in your name.
Related: Qualifications and Certifications for Construction Workers in the UK
Frequently Asked Questions
Do I have to register for CIS?
Not legally, if you are a subcontractor. But without registering you will have 30% deducted rather than 20%, so it is a poor financial decision. Contractors, meaning anyone who pays others for construction work, must register.
Is CIS the same as being self employed?
No. CIS is a tax collection scheme, not an employment status. You can be genuinely self employed and working under CIS, but registering for CIS does not by itself make you self employed.
How long does CIS registration take?
The CIS registration itself is usually quick once you have a UTR. Getting the UTR is the slower part, typically around a couple of weeks by post. Start the process before you need it rather than the week you start work.
Will I get a tax refund?
Many self employed construction workers do, because 20% is a flat estimate that takes no account of your personal allowance or your business expenses. Whether you personally get one depends on your income, your expenses and your circumstances. You will not find out until you file.
What if a contractor deducts 30% from me?
It usually means either you are not registered, or your details did not match HMRC’s records. Check your registration is active and that the exact legal name and UTR you gave the contractor are correct. Once fixed, future payments should be at 20%. Past deductions are recovered through your tax return.
Do I still need to do a tax return if CIS has been deducted?
Yes. Every self employed subcontractor must file a Self Assessment return. The deductions are advance payments, not a final settlement, and the return is how the two are reconciled.
Can I claim expenses if I am on CIS?
Yes, and you should. Tools, materials, PPE, business travel, insurance, professional subscriptions and use of your home for admin are commonly allowable. Every legitimate expense reduces your taxable profit. Keep receipts for all of them.
What if I do not get a payment statement?
Ask the contractor, ideally in writing. They are required to issue one for every tax month in which they made a deduction. Persistent failure can be reported to HMRC, and contractors face penalties for not providing them.
Do I need a CSCS card to work under CIS?
The two are unconnected. A CSCS card is about site access and health and safety competence. CIS is about tax. Most sites will require the card, but it plays no part in your CIS registration.
Can I work under CIS and have a PAYE job at the same time?
Yes, this is common, particularly for people moving gradually into self employment. Your tax return covers both, and your PAYE earnings affect the tax calculation on your self employed profits. It is worth getting advice the first time you file with both.
What happens if I make a mistake on my tax return?
You can amend it, and doing so promptly is treated far more favourably than waiting for HMRC to find the error. Correcting a genuine mistake made despite reasonable care often results in no penalty at all.
Should I set up a limited company instead?
It depends on your income level, your plans and your circumstances, and the CIS reclaim process works quite differently for companies. It suits some subcontractors and not others. This is worth a conversation with an accountant rather than a decision based on what someone said on site.
Final Thoughts
CIS explained simply comes down to one sentence: the contractor takes a slice of your labour payment, sends it to HMRC as an advance on your tax, and your tax return sorts out the difference at the end of the year.
Everything else follows from that. You register so the slice is 20% rather than 30%. You give exact details so the verification works. You split labour and materials on your invoice so the slice is taken from the right figure. You keep every statement so you can prove what was paid. You keep every receipt so your expenses reduce what you owe. Then you file your return promptly and get back whatever you overpaid.
None of that requires an accountancy background. It requires a folder on your phone and a bit of consistency in your first few months, which is when habits get set.
The one thing genuinely worth pausing over is your employment status. Being paid under CIS gives you no holiday pay, no sick pay and no employment rights, and if the reality of your work looks like a job rather than a business, that is worth questioning before you accept the arrangement rather than after something goes wrong.
Take an hour now to register properly and set up a system for your paperwork. It will save you a great deal of money, and considerably more stress, over your first year in the industry. Where anything is unclear or the sums involved are significant, check the current guidance on GOV.UK or speak to a qualified accountant with construction experience.
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