Starting out as a subcontractor in the construction industry can be exciting—but it also comes with responsibilities, especially when it comes to tax.
The Construction Industry Scheme (CIS), managed by HM Revenue & Customs, affects how you get paid and how your tax is handled. If you’re new to CIS, this guide will walk you through everything you need to do to stay compliant and avoid costly mistakes.
What is CIS?
CIS is a scheme where contractors deduct tax from subcontractors’ payments and send it directly to HM Revenue & Customs.
These deductions count as advance payments towards your:
- Income Tax
- National Insurance
Step 1: Register for CIS
Before you start work, you should register for CIS.
If you don’t:
- You’ll be taxed at 30% instead of 20%
Registering ensures you keep more of your earnings from the start.
Step 2: Get Your UTR Number
To register, you’ll need a Unique Taxpayer Reference (UTR).
If you don’t already have one, you’ll need to register for Self Assessment with HM Revenue & Customs.
Step 3: Set Yourself Up as Self-Employed
Most subcontractors operate as sole traders. This means you’re responsible for:
- Keeping records of income and expenses
- Submitting a yearly tax return
- Paying any tax owed
Step 4: Understand CIS Deductions
Under CIS, contractors deduct tax before paying you:
- 20% if you’re registered
- 30% if you’re not
These are not extra taxes—they are payments towards your final tax bill.
Step 5: Keep Your CIS Statements
Each time you’re paid, your contractor must provide a CIS deduction statement.
This document shows:
- Total amount earned
- Cost of materials
- Tax deducted
Keep these safe—you’ll need them when completing your tax return.
Step 6: Track Your Expenses
You only pay tax on your profit, not your total income. That’s why tracking expenses is so important.
Common allowable expenses include:
- Tools and equipment
- Protective clothing (PPE)
- Travel to temporary job sites
- Accountancy fees
Good record-keeping can significantly reduce your tax bill.
Step 7: Put Money Aside for Tax
Even though tax is deducted under CIS, you may still owe money at the end of the year.
A good rule of thumb is to set aside:
- 20–30% of your income
This helps you avoid unexpected tax bills.
Step 8: Submit Your Tax Return on Time
Every subcontractor must complete a Self Assessment tax return and submit it to HM Revenue & Customs.
Important deadline:
- 31 January following the end of the tax year
Missing this deadline can result in penalties starting from £100.
Step 9: Check If You’re Due a Tax Refund
Many subcontractors end up overpaying tax during the year.
You may be entitled to a refund if:
- Too much CIS tax has been deducted
- You have allowable expenses to claim
This is one of the most overlooked opportunities to recover money.
Step 10: Consider Gross Payment Status
If your business grows, you may be eligible to apply for Gross Payment Status.
This allows you to:
- Receive payments with no CIS deductions (0%)
- Take control of your own tax payments
This can significantly improve your cash flow—but you must meet strict criteria.
Common Mistakes to Avoid
New subcontractors often make avoidable errors, such as:
- Not registering for CIS
- Losing important paperwork
- Failing to track expenses
- Missing tax deadlines
- Assuming CIS covers all taxes owed
Avoiding these mistakes will save you time, money, and stress.
Final Thoughts
Getting set up correctly under CIS is essential for any subcontractor.
By:
- Registering early
- Keeping accurate records
- Staying on top of deadlines
…you can stay compliant and make sure you’re not paying more tax than necessary.
Need Help with CIS?
If you’re unsure about:
- Registering for CIS
- Completing your tax return
- Claiming a refund
Getting professional support can make the process much easier—and ensure everything is done correctly.