How CIS Tax Deductions Work in the UK
If you’re a subcontractor or contractor in the UK construction industry, understanding how CIS tax deductions work is essential. The Construction Industry Scheme (CIS) affects how you get paid, how much tax is deducted, and how you manage your finances.
Without a clear understanding, many workers end up confused about their earnings or overpaying tax to HM Revenue & Customs.
In this guide, we’ll break down how CIS tax deductions work, how they are calculated, and how Akount can help you maximise your income and stay compliant.
What Are CIS Tax Deductions?
Under the Construction Industry Scheme (CIS), contractors must deduct tax from payments made to subcontractors and send it directly to HM Revenue & Customs.
These deductions act as advance payments towards your tax bill.
This means you’re effectively paying tax throughout the year instead of in one lump sum.
Who Do CIS Deductions Apply To?
CIS deductions apply to:
Types of Work Covered
CIS deductions apply to:
CIS Deduction Rates Explained
The rate of tax deducted depends on your registration status with HM Revenue & Customs.
Registered Subcontractors
20% deduction
This is the standard rate applied to most subcontractors.
Unregistered Subcontractors
30% deduction
This higher rate applies if you are not registered for CIS.
Gross Payment Status
0% deduction
If approved, you receive full payments without deductions.
Gross payment status improves cash flow but must be applied for and approved by HMRC
How CIS Deductions Are Calculated
CIS deductions are applied to the labour portion of your invoice, not the materials.
Example
Invoice:
Labour: £1,000
Materials: £200
Total: £1,200
CIS deduction (20%) applies only to labour:
20% of £1,000 = £200
Amount you receive:
£1,000 – £200 + £200 (materials) = £1,000
Understanding this breakdown ensures you’re paid correctly.
What Happens to the Deducted Tax?
The contractor sends the deducted amount to HM Revenue & Customs on your behalf.
You’ll Receive:
These deductions are recorded against your tax account.
Do You Still Need to Pay Tax?
Yes. Even though tax is deducted under CIS, you must still:
CIS deductions are advance payments, not your final tax.
Can You Get a Tax Refund?
In many cases, yes.
If too much tax has been deducted, you may be entitled to a refund from HM Revenue & Customs.
Why Refunds Happen
In many cases, yes.
If too much tax has been deducted, you may be entitled to a refund from HM Revenue & Customs.
Many subcontractors are owed refunds but don’t claim them.
Expenses and CIS
Even under CIS, you can claim business expenses to reduce your tax bill.
Common Allowable Expenses
Claiming expenses correctly can significantly increase your refund or reduce your tax.
Responsibilities for Contractors
If you’re a contractor, you must:
Incorrect deductions or missed filings can result in penalties.
Common CIS Deduction Mistakes
Both contractors and subcontractors often make errors such as:
These mistakes can lead to overpaying tax or facing fines.
How to Reduce Your CIS Tax Liability
While deductions are fixed, your final tax bill can be reduced by:
How Akount Can Help
CIS can be complex, but managing it properly can save you time, money and stress.
Akount provides expert CIS accounting services for both subcontractors and contractors.
CIS Registration
We register you with HM Revenue & Customs and ensure you are set up correctly.
Deduction Management
We ensure the correct rates are applied and all records are accurate.
Self-Assessment Tax Returns
We prepare and submit your tax return, ensuring:
Monthly CIS Returns (Contractors)
We handle:
Bookkeeping and Software
We manage your finances using tools like Xero and QuickBooks.
Ongoing Support
We provide year-round advice to help you:
Final Thoughts
CIS tax deductions are a key part of how the construction industry operates in the UK.
Understanding how they work ensures you:
Speak to Akount Today
If you’re unsure about CIS deductions—or want to ensure you’re not overpaying tax-Akount is here to help.
We provide expert CIS accounting services tailored to contractors and subcontractors across the UK.
Contact Akount today and let us simplify your CIS while helping you keep more of your earnings.