Under the Construction Industry Scheme, contractors may deduct tax from payments made to self-employed subcontractors.
The standard deduction rates are:
● 20% if you are registered for CIS
● 30% if you are not registered or cannot be verified
● 0% if HMRC has approved you for gross payment status
These deductions are advance payments towards your final tax liability. They are not an extra fee charged for working under CIS.
For example, suppose you invoice a contractor £1,000 for labour.
If the contractor deducts CIS tax at 20%, the payment would be recorded as:
● gross income: £1,000
● CIS deduction: £200
● net payment received: £800
The £1,000 is your business income. The £200 is tax already paid on your behalf.
If your total CIS deductions for the tax year are higher than your final tax and National Insurance liability, HMRC may refund the difference. If they are lower, you may still have tax to pay.
We're building a simpler way for UK CIS subcontractors to track income, expenses and stay ready for Making Tax Digital.
Register your interest today and we'll let you know as soon as launch dates and early access become available.
