CIS Deductions Explained: What Gets Taken From Your Invoices

If you take payments from a contractor for construction work, or you pay subcontractors yourself, the Construction Industry Scheme decides how much tax is deducted before the money reaches anyone’s account. Here’s what HM Revenue & Customs’ own pages say today, with a link to each one so you can check it yourself.

What CIS is and who it applies to

Under CIS, a contractor deducts money from a subcontractor’s payment and passes it to HMRC as an advance against that subcontractor’s own tax and National Insurance [1]. You count as a contractor even if construction isn’t your main trade, once you’ve spent more than £3 million on construction work in the 12 months since your first payment [1]. Subcontractors don’t have to register, but staying unregistered means a higher deduction rate on every invoice [1].

How much gets deducted

HMRC sets three deduction rates depending on your registration and payment status [2].

Status	Deduction rate	What it means
Registered for CIS	20% [2]	The standard rate once HMRC has verified you
Not registered	30% [2]	Applies until you register with HMRC
Gross payment status	0% [2]	You’re paid in full and settle tax through your own return

Register and a contractor deducts the standard 20% rate; skip registration and they must deduct 30% instead [2][3]. Gross payment status takes you to 0% deducted at source, with everything settled through your own tax return instead [2].

Verifying subcontractors (a contractor’s duty)

Before you pay a new subcontractor for the first time, you must verify them with HMRC to find out which rate applies [4]. You must also re-verify anyone you’ve not included on a CIS return in the current tax year or the 2 tax years before that [4]. Once you’re verifying more than 50 subcontractors, HMRC says you need commercial CIS software rather than its free online service [4].

Filing your monthly return, and what happens if you’re late

Contractors must send HMRC a return every month, by the 19th of the month following the last tax month, even if no subcontractors were paid that month, in which case it is a nil return, unless you have told HMRC you are temporarily not using subcontractors [5]. Miss that date and the penalties escalate quickly: £100 for being a single day late, £200 at 2 months, then the greater of £300 or 5% of the CIS deductions on the return at both 6 and 12 months late, rising to the greater of £3,000 or 100% of those deductions after 12 months [5]. The return must also confirm that the subcontractors listed on it are not employees, and giving HMRC incorrect employment status information carries its own penalty of up to £3,000 [5].

Why this trips people up

The most common mistakes aren’t about the rate itself — they’re about timing. A subcontractor who registers halfway through a job can find the first invoice deducted at 30% and later ones at 20%, because the contractor could only apply the rate that HMRC’s verification returned on the day [4]. A contractor who forgets a single month’s return, even a nil one, still faces the same £100 opening penalty as someone who filed nothing at all [5]. None of this shows up until a reconciliation catches the gap, by which point the penalties have usually already been added.

What to do next

CIS deductions are only correct if your registration status, verification records and monthly returns are all lined up — and it’s easy to drift out of sync without noticing. Loomwork Ai’s compliance audit checks what you’re actually filing against what HMRC’s own rules require.