If you take on construction work for contractors, the Construction Industry Scheme affects how — and how much — you get paid. Here's how CIS works for subcontractors in 2026.
The Construction Industry Scheme (CIS) is HMRC's system for handling tax in the construction sector. Under it, contractors deduct money from a subcontractor's payments and pass it to HMRC as an advance towards that subcontractor's tax and National Insurance. If you do construction work for other businesses, understanding CIS is essential — it directly affects your cash flow.
Does CIS apply to you?
CIS covers most construction work in the UK — building, alterations, repairs, decorating, demolition and groundworks among others. You are a subcontractor if you do construction work for a contractor. Many businesses are both: a contractor when they pay others, and a subcontractor when they are paid.
The deduction rates
How much a contractor deducts before paying you depends on your registration status:
| Status | Deduction |
|---|---|
| Registered for CIS | 20% |
| Not registered | 30% |
| Gross payment status | 0% (no deduction) |
The message is simple: register. An unregistered subcontractor loses 30% of every payment to HMRC up front, against 20% once registered — a real difference to cash flow while you wait to reclaim any overpayment.
Important: CIS deductions are not an extra tax. They are advance payments towards the tax and National Insurance you would owe anyway. If too much has been taken, you reclaim the difference after the tax year.
Gross payment status — getting paid in full
Established subcontractors can apply for gross payment status, where the contractor pays you in full with no deduction and you settle all your tax through Self Assessment or your company return. To qualify you must pass HMRC's tests on your business, your turnover and your compliance history — broadly, filing and paying on time. For a growing business, gross status can transform cash flow, but it puts the onus on you to set tax money aside.
How deductions come back to you
For sole traders and partnerships, CIS deductions are offset against your tax bill when you file your Self Assessment — often resulting in a refund. Limited companies reclaim deductions through their payroll and CIS records against PAYE liabilities. Keeping every payment and deduction statement is vital; without them you cannot prove what has already been paid.
What's changing in 2026
Two changes are worth noting for the 2026–27 year:
- From 6 April 2026, payments made to subcontractors who are local authorities or certain public bodies fall outside the scope of CIS.
- Contractors are now required to notify HMRC, or file a nil return, for periods in which they make no payments to subcontractors — tightening the reporting rhythm.
Staying compliant as a subcontractor
- Register for CIS before you start taking on work, to avoid the 30% rate.
- Keep every payment and deduction statement from each contractor.
- Track your deductions through the year so you know exactly what to reclaim.
- If you are growing, consider whether gross payment status is worth applying for.
Unclaimed CIS refunds are one of the most common ways subcontractors overpay HMRC. We handle CIS registration, monthly record-keeping and refund claims for tradespeople across Erith, Bexley and Dartford, and make sure nothing is left with HMRC that should be in your pocket. Get in touch for a free consultation.
Need a hand with this? BDH Accounting offers fixed-fee, ACCA-accredited support to sole traders and small businesses across Erith, Bexley, Dartford and Kent. Book a free consultation.
This article is general guidance based on the rules at the time of writing (4 May 2026) and is not personal tax advice. Tax rules change and individual circumstances differ — please get advice before acting.