How CIS Works in 2025/26
Under CIS, contractors must deduct tax from payments to subcontractors for construction work. The deduction is applied to the labour element only — not materials.
CIS Deduction Rates
| Subcontractor status | CIS deduction rate |
|---|
| Registered with gross payment status | 0% — paid in full |
| Registered with standard net payment status | 20% |
| Unregistered (or verification failed) | 30% |
What CIS Applies To
CIS applies to payments for construction operations, including: building work, alterations, repairs, decorating, installing systems (heating, lighting, power, water), civil engineering, and demolition. It does NOT apply to:
- Materials supplied (deduction only on labour/profit element)
- Professional services (architects, surveyors, consultants)
- Carpet fitting, delivering materials only
- Work on domestic properties by the homeowner (unless contractor)
How Subcontractors Reclaim CIS Deductions
CIS deductions are payments on account of the subcontractor's income tax and NI liability. Subcontractors reclaim any overpaid amounts through Self Assessment (sole traders) or via Corporation Tax return (limited companies). Many subcontractors receive refunds as CIS deductions often exceed the actual tax due.
Getting Gross Payment Status
Subcontractors can apply for gross payment status (no CIS deduction) if they pass HMRC's tests: turnover of at least £30,000/year (for sole traders) or £100,000 for most companies, good tax compliance record, and business mainly in construction.
Frequently Asked Questions
What is the CIS deduction rate in 2025/26?
Standard registered subcontractors: 20% deduction on labour. Unregistered subcontractors: 30% deduction. Subcontractors with gross payment status: 0% (paid in full). Verify status by calling HMRC's CIS Helpline before making payment.
Does CIS apply to materials?
No. CIS deductions only apply to the labour (and profit) element of the invoice, not materials. If an invoice is £5,000 labour plus £2,000 materials, CIS is calculated on £5,000 only. The subcontractor should clearly separate labour and materials on their invoices.
How do subcontractors reclaim CIS deductions?
Sole trader subcontractors declare CIS deductions on their Self Assessment tax return — deductions offset against their income tax and NI liability. Limited company subcontractors reclaim via their Corporation Tax return or request monthly repayment from HMRC. Many subcontractors receive refunds.
What counts as construction for CIS?
Construction operations include: building, altering, repairing, extending or demolishing structures; installing heating, lighting, power, water or sanitation systems; cleaning the interior of buildings (when done in conjunction with other construction work); site preparation including roads, fences.
What is gross payment status?
Gross payment status means a subcontractor is paid in full without CIS deductions. To qualify: comply with all tax obligations for 3 years, turnover of at least £30,000 (sole trader) or £100,000 (most companies) from construction work, and business must be run through a bank account. Apply via HMRC's online CIS service.
Do I need to register for CIS as a contractor?
Yes. If you pay subcontractors for construction work, you must register as a CIS contractor with HMRC. You must verify each subcontractor before first payment, make the correct deduction, file monthly returns by the 19th, and pay deductions to HMRC by the 19th (22nd if paying electronically).
What is the CIS monthly return deadline?
Monthly CIS returns are due by the 19th of the month following the tax month. The tax month runs from the 6th to the 5th. So for work in April 2025 (6 April – 5 May), the return is due 19 May 2025. Penalty for late return: £100 per month late.
Can a limited company be a CIS subcontractor?
Yes. Limited companies can be subcontractors under CIS. They can also apply for gross payment status. Companies can offset CIS deductions against their PAYE/NI liabilities or claim a refund. From April 2024, rules were tightened to prevent non-construction companies exploiting CIS.