VanlyYou send a contractor an invoice for £800 and £640 lands in the bank. The missing £160 has not been robbed. It has gone to HMRC under the Construction Industry Scheme, and most of the time you get it back. This is the CIS scheme explained the way a tradesman actually needs it. What the deduction is, why it happened, and how you claim it back at year end.
Keeping every CIS statement in one place is half the battle, and if admin already eats your evenings, try Vanly free for 14 days while you are here. No card needed to start.
What the Construction Industry Scheme actually is
The Construction Industry Scheme, CIS for short, is HMRC's way of collecting tax from subcontractors up front instead of waiting for a tax return.
Here is the whole thing in one sentence. When a contractor pays a subcontractor for construction work, the contractor takes a slice off the payment and sends it straight to HMRC. That slice counts as an advance on your tax and National Insurance for the year.
It is not an extra tax. It is your own tax, paid early, whether you wanted to or not. HMRC set it up because too much cash was moving around building sites and never showing up on a tax return. So they made the payer do the collecting.
The gov.uk CIS overview is the official word, and the full CIS 340 guide is the deep version if you want chapter and verse. This post is the plain English one.
Why 20% has gone off your invoice
This is the bit most tradesmen actually search for.
You worked for a main contractor. You invoiced. The payment came in short by 20%. Nobody explained it. Here is what happened.
The contractor is legally required to deduct CIS from your labour before they pay you, and hand it to HMRC on your behalf. If you are registered for CIS, that deduction is 20%. If you are not registered, it is 30%. Same job, ten percent more of your money locked up with HMRC until you sort it out. That is the entire reason to register.
The deduction is not lost. The contractor gives you a monthly statement showing exactly how much they took. You keep that statement. At year end it is proof you have already paid that tax, and it is how you get any overpayment back.
Are you a subcontractor, a contractor, or both
CIS splits everyone into two roles, and plenty of tradesmen are both at once.
You are a subcontractor when you do construction work for another business and they pay you. Most solo tradies working under a main contractor are subcontractors. You are the one getting the 20% taken off.
You are a contractor when you pay other subcontractors to do work for you. Take on a labourer through their own limited company, or bring in another trade to help on a job you are running, and you may have stepped into contractor territory. Now you are the one who has to deduct, verify, and file.
The catch is you can be both in the same week. A kitchen fitter subcontracting to a builder on Monday, then paying a sparky on Wednesday, is wearing both hats. If you pay other subcontractors, read the gov.uk CIS overview on the contractor duties, because the filing side has real deadlines and real penalties.
20% or 30%, and what the deduction is actually taken from
Two numbers worth burning into memory.
Register for CIS and you are deducted at 20%. Do not register and the contractor must take 30%. Registering is free and takes minutes, so leaving 30% on the table is just handing HMRC an interest free loan of your cash for longer than you need to.
The second thing that trips people up is what the deduction comes off. It is taken from the labour portion only. Genuine materials, plant hire, and equipment costs are excluded, as long as you show them separately on the invoice.
| Line on your invoice | Amount | CIS deducted? |
|---|---|---|
| Labour | £600 | Yes, 20% = £120 |
| Materials (cable, board, fittings) | £200 | No |
| Total invoiced | £800 | £120 taken, £680 paid |
This is exactly why how you write your quote and invoice matters. Lump labour and materials into one figure and the contractor can deduct 20% off the whole lot, materials included. Split them out and you keep your materials money in your pocket where it belongs.
How to register for CIS
Registering is quick, and you do it after you are set up as self employed.
First, if you have not already, you need to be registered as self employed with HMRC and have your Unique Taxpayer Reference. Our guide on how to register as self employed in the UK walks through that part, including the UTR and the Government Gateway login.
Once you have your UTR, you register as a CIS subcontractor through HMRC, either online or by phone. You will need your UTR, your National Insurance number, and the legal business name you trade under. That is it. From then on any contractor who pays you can verify you and deduct at 20% instead of 30%.
If you trade as a limited company rather than a sole trader, the CIS mechanics are different, and whether that even makes sense for you is a separate decision covered in sole trader vs limited company for tradesmen.
How you get the money back at year end
This is the good news the 20% headline hides.
Those CIS deductions are an advance on your tax bill, not the final bill. Your actual tax is worked out on your profit after you take off your personal allowance and all your legitimate expenses. Tools, van, insurance, materials, phone, the lot. For a lot of subcontractors, the 20% taken across the year adds up to more than they actually owe.
When that happens, HMRC pays the difference back.
The mechanism is your Self Assessment tax return. You add up every CIS deduction from your monthly statements, put the total on your return, and HMRC sets it against your final tax and National Insurance. Overpaid, you get a refund. Underpaid, the deductions have already covered most of it and you top up the rest.
This is the single biggest reason to keep every monthly CIS statement. No statement, no proof of the tax you already paid, no refund. A shoebox of them works. One folder on your phone works better.
Gross payment status, for getting paid in full
There is a version of CIS where nothing gets deducted at all.
It is called gross payment status. Qualify for it and contractors pay you the full invoice, no 20% held back, and you settle all your tax through your return at year end instead. For a business with tight cash flow, keeping that 20% working in your account through the year is a real advantage.
You have to earn it. HMRC run three tests: a business test, a turnover test with a minimum labour turnover threshold, and a compliance test that checks you have paid your own tax and filed on time. The CIS 340 guide sets out the current thresholds. Miss a filing deadline and HMRC can take gross status away, so it rewards the tradies who keep their paperwork straight all year.
What changed in April 2026
A couple of updates landed at the start of the 2026 to 2027 tax year, mostly on the contractor side.
From 6 April 2026, payments to local authorities and other public bodies fall outside CIS, so if you invoice a council directly for construction work the deduction should no longer apply. And contractors now have to file a monthly return even in months where they paid no subcontractors, a so called nil return. If you only ever wear the subcontractor hat, neither changes your day much, but it is worth knowing the council rule if you pick up public sector work.
Keeping your CIS paperwork straight
CIS lives or dies on records. The deduction only comes back if you can prove it happened.
Keep three things for every job under CIS: the invoice you sent with labour and materials split out, the monthly CIS statement from the contractor, and a running total of deductions for the tax year. Get to year end with those in order and your return is a ten minute job. Get to year end with none of them and you are chasing contractors for statements you should have filed months ago.
That record keeping is the same muscle as keeping on top of quotes, invoices, and chasing late payers, which is the whole reason Vanly exists as an AI office manager that keeps the paper trail for you. Try it free for 14 days: no card needed to start.
FAQ
Why has 20% been taken off my invoice?
Because the contractor paying you is required to deduct CIS from your labour and send it to HMRC. It is an advance on your own tax, not a fee. You reclaim any overpayment through your Self Assessment return at year end using the monthly statements the contractor gives you.
Do I have to register for CIS?
You do not have to, but if you do construction work as a subcontractor and stay unregistered, contractors must deduct 30% instead of 20%. Registering is free and quick, so almost every subcontractor should do it to keep more of their cash flowing through the year.
Is CIS a separate tax on top of income tax?
No. It is your income tax and National Insurance, collected early. The deductions count towards your final bill. If they add up to more than you owe once expenses and your personal allowance are counted, HMRC refunds the difference.
Does CIS come off my materials as well as my labour?
Only labour, provided you list materials, plant, and equipment hire separately on the invoice. If you lump everything into one figure, the contractor can deduct from the whole amount, so always split labour and materials on the quote and the invoice.
How do I get my CIS deductions back?
You total up every monthly CIS statement for the tax year, enter the figure on your Self Assessment return, and HMRC sets it against what you actually owe. Overpaid, you get a refund. This is why keeping every statement matters.
What is gross payment status and should I get it?
It lets contractors pay you in full with no deduction, so you keep the 20% working in your account and settle up at year end. You have to pass HMRC's turnover and compliance tests to get it, and keep filing on time to keep it. Good for cash flow if your paperwork is tidy.